Eight Simple Ways to Consolidate Debt

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Debt consolidation - How to consolidate student loans
The Federal student loan program has benefited thousands of college students in the forty years since it was introduced. Interest rates for the program have historically been quite competitive, and the program has allowed many people to acquire a college education who otherwise might not have been able to afford one. At the moment, interest rates on Federal student loans are the lowest ... Read debt consolidation article



Debt consolidation loan - What you need to know.
If your objective is to reduce interest rates and lower your monthly payments, avoid bankruptcy, consolidate your bills and have one monthly payment, or simply get out of debt the fastest way possible, then a debt consolidation loan could provide the answer. Are you feeling overburdened with debt? Are you paying out too much every month for your credit cards, store cards and loans? Then... Read debt consolidation article



Eight Simple Ways to Consolidate Debt
Next to winning the lottery, a debt consolidation loan is a debtor's dream. With one monthly payment and a fixed monthly payment schedule, you can actually see an end to those monthly payments.

In reality, consolidating bills isn't always easy. If you have a lot of debt, it can be hard to find a consolidation loan at a lower interest rate. And if you're not careful, you can end up deeper in debt than when you started.

Your goal in consolidating your debt should be to lower your overall costs. To accomplish this there are two things to keep in mind:

1. Get the lowest interest rate possible

2. Have a plan to pay off your debts in 3 - 5 years.

Here are some of the best ways to consolidate:

Using Credit Cards

The good news about this method is that with a good credit rating, you may get a much lower rate than other forms of consolidation loans. And since credit card issuers don't require collateral, you aren't "risking the farm."

Call your current issuer to ask what interest rates they will offer you if you transfer balances from other cards over to theirs. Go for a fixed rate if you can get it, and ask them to waive any transfer fees. If you can't negotiate a low rate with your current issuer, try shopping for a new card at a site such as CardRatings.com. But be careful! Too many applications for credit in a short period of time can hurt your credit rating.

Once you do consolidate this way, be sure to set up an optimal payment plan so you can be debt-free in 3 - 5 years.

Home Equity Loans

With a home equity loan, you borrow against the value of you home, minus any other mortgages. The two major kinds are:

1. A Home Equity Loan - a fixed amount of money for a fixed period of time (sometimes at a fixed rate) and

2. A "Home Equity Line of Credit" where you borrow up to a pre-approved credit limit (interest rates usually variable) and can borrow again if you still have money available.

These loans can offer attractive rates, low payments, and the interest is usually tax-deductible if you itemize.

Many issuers offer no or low closing costs for these loans. Interest rates are often variable, however, and there's always the risk that you can lose your home if you can't pay.

Cash Out Refinance

Refinancing your home and taking out money to pay off bills (called "cash-out refinance") is yet another way to tap the equity in your home. If you can refinance at a substantially lower interest rate, you'll eliminate the high interest costs of the debts you pay off, and you could even come out with a lower payment than you have right now since rates are so low.

One option to consider: an interest-only loan. By lowering your monthly payment, you can free up money to use toward paying down other high-rate debt or building a retirement fund.

Make sure you understand the total cost of refinancing. Take any money you've freed up by paying off other bills and use that to create an emergency savings fund.

Traditional Debt Consolidation Loans

A debt consolidation loan is an unsecured personal loan, and the only collateral you are offering for the lender's security is you. Because lenders consider them risky loans, they're usually more expensive and not always easy to get if you have a lot of debt.

If the interest rate is too high to make it worth it and the repayment term is ten or fifteen years, you should probably consider another method of consolidation. However, if the term and interest rate are right, this can be a great way to actually save money in the end. (Check Bankrate.com for current averages). Remember, to calculate the total cost of the loan from start to pay-off.

Credit Counseling

Credit counseling agencies may help you get out of debt, though they don't actually consolidate your debt.

Instead, payment plans (usually with lower interest and fees) will be worked out for all of your eligible debts. You'll make one monthly payment to the counseling agency, which will pay all your creditors.

Participating in a credit counseling program generally won't hurt your credit rating, and if you stick to the plan you can be out of debt in three to six years. But be careful which agency you work with. If the counseling agency pays your bills late, you'll pay the price since you're still responsible to the lender. It happens.

Debt Settlement

Debt settlement is another option that's become increasingly popular with consumers who have a lot of debt and can't, or won't, file bankruptcy. You stop paying your bills and instead make a regular monthly payment to the settlement company. Your creditors contact them, and not you, about your overdue bills. As your accounts fall further behind, the negotiation company will settle your balances - usually for 50% of the balance or less (including fees) depending on the debt. Most people can be out of debt in less than two years or less using these programs.

It's not perfect. Your credit rating will be hurt in the short run and you must be certain you're dealing with a reputable company or the money you pay each month could disappear. Still, for consumers who can't shoulder the burden of debt they have now, it can be a very good option.

Retirement Loans

If you have a 401(k), 403(b) plan or certain types of pension plans, you can borrow against your nest egg. (You can't borrow against your IRA.) It's easy, with no income qualifications or credit check.

The key here is to borrow against your retirement account, rather than withdraw from it early so that you don't end up paying taxes and a 10% penalty. Also, if you leave or lose your job, you may have to pay your loan back immediately or pay taxes and penalties for an early withdrawal.

These loans typically offer low interest rates, and interest is paid to you, since you are the lender. While tapping your next egg like this can short-change your retirement, so can costly debt payments. If you are in your 20's and 30's,you obviously have more time to rebuild a retirement nest egg, but even if you're in your 40's or 50's, you will want to weigh the cost of paying the high interest of the debts over time, versus borrowing from your retirement account. The return you get from paying off high-rate debts is guaranteed - while the stock market isn't.

Rapid Repayment

There is a mathematically optimal way to pay your debts. Choose a fixed level monthly payment, and commit to it each month. Pay as much as you can on the highest rate debt first, while payment the minimums on the rest.

I almost always suggest consumers with debt start by creating one of these plans. Many people who do so find they don't even need to consolidate to get out of debt in the next few years. They just need a plan and they can do it on their own.

Overview

The biggest mistakes people make when it comes to consolidation are:

A. Not having a plan for paying the debt off after they've consolidated, and

B. Procrastination. Waiting for the "perfect" solution to come along almost always means you'll end up deeper in debt. Choose your approach, and start getting out of debt today!

For more information on dealing with debt, visit www.stopdebtcollectorscold.com.

Gerri Detweiler is considered one of the country's top credit experts. She has been interviewed in thousands of radio, television and print news stories including USA Today, The Wall Street Journal, The New York Times, Dateline NBC and many others. She has testified before Congress several times and worked on reform of the national credit reporting laws.

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Debt counseling - Debt and your dreams

You may not realize what that credit card bill is doing to you.

Bob is a 27 year old truck driver. He dropped out of college after one year and got a job. With hard work and good luck, he is making about $35,000 a year. Bob is passionate about remaining debt free. He drove his old car from high school until he could afford to pay cash for a newer one. He rented a cheap apartment until he saved a solid down payment on his house. Even during the lean months, he steadfastly refused to build up a credit card balance he couldn't pay off at the end of the month.

At 27, he's decided he's tired of his job and would like to change directions. By living within his means and staying out of debt, Bob has enough money in the bank to take some time off, get a part time job, and go back to school. He has visions of owning his own business one day soon - and there's nothing to stop him.

Now meet John. John is in his 40's and is in upper management with his company. He's making more than double Bob's salary, but he's had a different outlook on life. John has never been afraid of debt - he figured as long as he could afford to pay the bill he was ok. He has a very nice house, a brand new $40,000 car, lots of new sports and recreation equipment, and travels extensively on his vacations. And he's done it all on credit. John was living this lifestyle before he could afford it. Now, he's almost tapped out - his credit cards are maxed out, his house is double mortgaged, and even though he's making a great income, he has lacks the lifestyle, peace of mind, freedom, and opportunity Bob has.

Externally, anyone who saw the two would think that John is the greater success. But the truth is John is trapped. He may be tired of his job. He may want to do something else. He may wish he could spend more time with his family than at work or have a business venture he'd like to pursue. But he spent his money before he had it, and now he's paying the price.

Most of us think that the key to Financial Freedom is making a lot of money, but we see from our two examples that that's only part of the equation. The other part is lifestyle management and debt avoidance or debt elimination. If we plan wisely, stay out of debt, and control our desires to spend beyond what we can afford, we can enjoy a great amount of financial independence and have money to spend on things we really want to have and do, even on a very modest income.

However, for most of us, this message comes too late. Anyone buried in debt will agree that it would have been better never to get into debt. But that doesn't help much now. What we need now is some help undoing the mess we made.

Stay out of debt. If you're in debt get out. Don't take out another loan, declare bankruptcy, or sign up for credit counseling services, which can damage your credit. Instead, do your homework and educate yourself on the steps you can take to get back on solid financial footing, no matter what your present situation is.

---

Leonard Hopkins is a 30 year old internet entrepreneur. His purpose in business is to help people from all walks of life gain relief from the money trap that many have fallen into.

His websites are http://www.smartmoneyonline.com and http://www.freedomsociety.net


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Eight Simple Ways to Consolidate Debt
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