Debt consolidation tutorial
In the credit card world we live in, debt consolidation is becoming more and more necessary for survival.
Debt consolidation usually means one thing, and one thing alone: the consumer is living beyond their means. First, there’s the dreaded credit card, which most people have no problem ripping out of their pocket when they see something that strikes their fancy. Second, many people are involved in at least one thing that slips to the back of the mind when it comes to budgeting the weekly or monthly expenses: that cup of $3 coffee every day on the way to work, the $20 dinner at Mickey D’s after soccer practice and the desire to cook is just too hard to muster.
There’s no disgrace in debt consolidation. There is, however, a need to do some research.
Viable means to consolidate
- The home equity loan.
Usually available at low interest rates, which are also tax deductible, the home equity loan lets the homeowner’s money work for him. Most fixed-rate home equity loans carry a term of 15 years, expect an appraisal and title insurance, and require an origination fee from $75 to several hundred dollars.
- Cash-out refinancing
In addition to the home equity loan, the homeowner can also refinance for an amount greater than the amount owed. This way there is enough money to pay off the debt, and maybe a little extra for needed home repairs. Interest rates are low on this type of loan, but since they are usually stretched out over a longer period of time, say 30 years, the total payout can be humungous. It would be best to consider this as a last resort.
- Refinance your car
Although a strange and little-used alternative, a car loan is a secured loan and can be drawn against. The downfall with this form of loan is the car will, more than likely, depreciate faster than the loan is paid off.
- Personal loans
If the consumer hasn’t blatantly damaged his credit, an unsecured personal loan could be the answer. Banks and credit unions offer personal loans to credit worthy customers every day. Credit unions usually offer a better rate than banks, but with either the rate will still be 11% or higher. Even though, it’s far better than the outrageous rates of a credit card.
- Negotiate better terms
The obvious way to reduce debt, yet highly overlooked, is to simply call the credit card company and ask them to reduce their rate. Operators are often given the authority to reduce a consumer’s rate right there on the phone.