Getting into debt is all too easy. When you are employed, with a steady income, you tend to spend more. As soon as that income drops or disappears completely, many people find themselves in deep trouble. All it takes is a few months of reduced income to get to a point where you are in arrears with several payments.
Your first option should be to sit down and compile a detailed list of your current income and expenses. This will help you determine the amount of cash you have available to repay the arrears on your bills. If you are in a situation where you simply cannot cope with your arrear payments, you should consider debt consolidation loans.
As soon as you have made the decision to go the debt consolidation route, your next step is to find the most suitable plan for your needs. Some of the options are better than others, but your situation is unique and you should find the one that best suits your predicament.
Credit Card Balance Transfer
If you find that you have a couple of credit cards that you have maxed out, a good option is to transfer the balances to a credit card that charges a lower interest rate. There are many offers available from credit card companies which will enable you to do this.
• The available credit card offers a lower interest rate, hence reducing the interest charge on a monthly basis
• Your credit card debt will be consolidated into one card. This makes regular payment easier
• You may be charged a balance transfer fee
• If you do not make regular payments, the preferential interest rate may be adjusted to one that could be higher than your existing rate
• You may start using your zero balance credit cards again, thereby compounding your debt and making your situation worse
This is often the easiest form of debt consolidation loans available. If you have equity in your home, you could use it to settle all your outstanding debts by refinancing your mortgage.
• Mortgage loans generally carry much lower interest rates which makes them ideal as debt consolidation loans
• You have the facility to obtain a tax perk on the interest payable
• Your monthly debt repayments will be less and you will be paying less in interest compared to credit card debt. Depending on the type of mortgage you qualify for, it may be possible to extend the period to allow you a longer time to pay the outstanding amount. This will provide you with some breathing space as you will not be using all your income simply to pay off your debt
• Your home is the security you offer for this type of loan. If you default on your payments, you could lose your home
• The loan has to be settled in full if you sell your home
If you are not a home owner or you do not want to obtain an additional credit card, a personal loan is a good option.
• The interest rate is generally lower than that charged on credit cards
• Personal loans are fairly easy to obtain
• Since this is an unsecured loan, the interest rate is normally higher than a home equity loan
Regardless of the available debt consolidation loans available to you, you should be careful that you do not slip back into the same situation again. It is easy to do so if you only have one account to pay. The availability of funds on your credit cards could become extremely tempting. Find a suitable debt settlement company to help you become debt free and remain that way.