Financial Articles

In debt? Lots? Did you know you are valuable to a lender? If you have a history of paying your debts, even if it is slowly, then to a lender you are valuable. That is because you pay interest on money they have lent. That interest is like their salaries and if you keep paying them, they keep getting paid.

In a way you are working for the lender, and as long as you pay regularly you do not cost them anything to have as an employee. Wow, what a great deal, for them. With this little knowledge your job is to go to 5-10 lenders and see what kind of deal you can negotiate. If you have some high interest credit cards it could be the most money you ever saved in your life. As likely your new lender will have a lot lower rates on the loan.

Gather up all your payments and write down; how much you owe each, the monthly payment, and the interest rate. Total up how much you owe and total monthly payment and the high and low interest rates. This is the info you need, to determine if you are getting a better deal from a new lender. Often one of your current lenders will cut you a much better deal if you tell them you will move to a new lender if they don’t.

Why would a lender do that? Well whatever the prime interest rate is federally is likely how much they pay for the money you have. As an example, lets say prime is 6% and your average interest rate you are paying on your loans is 20%. They are making a fortune off you. For them basically anything over 7% is still making them money. As they have very little work involved. It may be better than nothing, so they might cut you a better deal.

Remember, without borrowers there wouldn’t be any lenders. They need your business so make them earn it. Be smart, be wealthy.

If you can control your spending, a debt consolidation loan will give you some space for reorganizing your finances and start reducing your debt on a continued pace. A debt consolidation loan alone won’t solve your problems though. You need to have some discipline, cut your spending dramatically and stick to a budget rigorously in order for a debt consolidation/reduction plan to work.

Credit Card Debt Spiraling

The main problem with credit card debt is that due to the high interest rates that credit card financing implies, it can easily escalate and go out of control. The possibility to make only minimum payments that increase in a slower rate than the debt itself is extremely tempting but leads hopelessly to debt accumulation. Eventually, minimum payments become unaffordable and a late payment or a missed payment triggers credit cards’ penalty fees and rates that boost this process even more, making debt reach new heights.

To put a stop to this, one needs to refrain from using the credit cards and start making more than the minimum payments because sometimes even the minimum payments won’t cover for the amounts added due to interest, fees and other costs. However, this is not always possible and so; another source of finance must be used to cope with this problem. That’s when Debt Consolidation Loans become an invaluable aid.

Consolidating Credit Card Debt

A debt consolidation loan will let you cancel your credit card balances in full so they stop generating high amounts of interests. You’ll only have to worry about a single monthly installment: The debt consolidation loan payment. The interest rate charged for the money will be considerably lower and the repayment program will be flexible enough so you can easily afford the monthly payments.

However, you need to be extremely careful, because, unless you stop using your credit cards, the debt consolidation loan won’t be anything but an invitation to continue increasing your debt to new and higher amounts and the only solution this next time will be to file for bankruptcy. In order to avoid such situation you need to change your spending behavior.

The best thing you can do is to destroy all your credit cards but one or two. Do the same with all your store cards (store cards carry a lot higher interest rates than regular credit cards so you need to be extra careful with them). Even after getting rid of all your cards but one or two, you need to refrain from using the ones left unless the expenses are really necessary. You can use this procedure: Before buying anything think whether you have the cash to pay for it or not, if you don’t then you shouldn’t buy it unless it is an essential and urgent need like food or medicine.

If you think that debt consolidation will solve all your debt problems, you need to think again. It is true that debt consolidation can solve some terminal credit situations but that is mainly because things couldn’t be worse. Debt Consolidation can be very risky, if you are not careful enough when selecting your debt consolidation agency and you don’t control the things they do with your finances, you may end up in a worse situation than when you started.

When Should I Consolidate My Debt?

A debt consolidation program should be undertaken only if your debt cannot be refinanced any further. It is always better to refinance your current debt than to contact a creditor and tell them that you can’t repay your debt and you need to negotiate new loan terms or else you’ll have to file for bankruptcy and he may never recover his money (This is what debt consolidation is, to make things clear).

Though most lenders will agree to new terms, the approach that debt consolidation implies will destroy your ability to get finance in the future. For a long time, you won’t be able to get approved for a loan or credit card again without the aid of your debt consolidation agency.

Thus, only if your debt has become unbearable and you can no longer meet your monthly payments should you consider joining a debt consolidation program. Moreover, you’ll loose control over your finances, you probably won’t be able to use your credit cards and store cards anymore and you’ll have to learn to live by the day as all the efforts will go towards eliminating your debt.

Beware of Secure Debt Consolidation Loans

Debt consolidation agencies usually suggest that you take a debt consolidation loan in order to pay off your debt. The advantage of this kind of loans is that the interest rate charged is lower and that the repayment program is a lot longer. Thus your monthly payments will be affordable and you will recover a significant part of your income so you can save money, repay other debt or pay for necessary expenses.

However, on the dark side of these loans, the fact that these loans are secured implies that you are risking your home because if you fail to meet the loan installments, the lender can always recover his money by taking legal action and claiming the property. Secured consolidation loans are an excellent solution to combine with other forms of debt consolidation and obtain debt relief, but the risks involved should be considered carefully.

Choosing the Debt Consolidation Agency Carefully

There are many companies that have been working for many years in the financial industry and know how to provide consolidation services affecting your finances and credit score the least possible. But there are others with less experience that may ruin your credit score for many years during this process. And, sadly, there are even others that are nothing but scams. So, you should be extremely careful when choosing the company you are planning to work with.