If you’ve got a number of credit cards and insurmountable credit card debt, then perhaps it’s time to consider a debt consolidation loan. A consolidation loan is a loan that you can use to pay off all your debts, meaning that you can pay them off for less money without having to worry about lots of different bills.
For instance, if you had borrowed $3000 five years ago, you may now owe $5000 (principle plus interest). A debt consolidation program may involve eliminating some amount of interest so that you pay less than $5000.
Also, your previous outstanding balances may be on five different credit cards. You need to pay 5 bills every month. Once you participate in a debt consolidation program, all your accounts will be consolidated into one account. You now pay only one bill each month.
In a credit card debt consolidation, your average interest rate may be reduced. All your loans can also be transferred to one single card that has a lower interest rate than the ones you are currently paying.
Here are top three factors to consider for Credit card debt consolidation:
1. Interest Rate
Get the best interest rate you can if you opt for debt consolidation. This interest rate is almost as important as the one on your mortgage, but much harder to change after you’ve signed on the dotted line. Don’t be fooled by any offers that give you a good rate for a limited time - you’re going to have this loan for quite a while.
Interest rates for credit card debt consolidation loans through traditional lenders may be based on your credit score. If high, you are likely to get a credit card debt consolidation loan at a lower interest rate. If the credit score is low, credit card debt help companies may be able to help offer methods for raising your credit score.
2. The loan tenor or length of the loan
The most overlooked aspect about debt consolidation loans is that the ones with lower payments generally last a very long time - you may end up paying it off for twenty years, or even longer. You should try to find a loan that doesn’t last as long, and asks for payments that are as much as you can afford.
3. A payment sum that you can manage.
Almost without exception, the loan will be secured on your home. That means that if you start missing payments, the finance company will kick you out, take (’repossess’) your house, sell it, and pay back the debt with that money.
Elaine Lim used to be a research analyst from a bank and now hopes to share her expertise through publishing information on consumer credit. She hopes to help others in their financial planning, debt management and credit repair. For more free tips and resources, please visit www.credit-cards-eguide.com.
An estimated 3m people owe more than £10,000 on credit cards, overdrafts and loans, new research shows.
Among these people just over 2.5m have unsecured debts of more than £50,000, according to debt solutions company One Advice.
Their research found that one in 10 people who owe five figure sums are worried about whether they will be able to repay their debt.
A fifth of people also admitted they had months where they found it difficult to meet their repayments, and 3% said they had problems affording repayments most months.
In 16% of cases people said they were planning to take action to address their financial problems, with 7% claiming they were considering going bankrupt.
London has the highest proportion of people with large unsecured debts, with 9% of the population owing more than £10,000, followed by the North and Yorkshire at 8%.
People in the Midlands were least likely to have big debts, with just 4% of the population owing more than £10,000.
Debt advisors are already braced for a surge in pleas for help when people realise the scale of their problems after Christmas.
Those worrying about their finances should seek professional advice, as taking out the wrong debt solution could make matters worse.
New Bankruptcy Rules have come into force, which may enable people with severe debt problems to become debt free much quicker than previously. Bankruptcy may be a better solution than debt management, an IVA or Trust Deed
Indeed, bankruptcy can sometimes appear to be the easy way out for people with serious financial problems. But there are difficulties associated with this that can remain for some time.
Bankruptcy stays on your credit file for six years, which can affect your ability to get a mortgage and credit.
An alternative to bankruptcy could be an Individual Voluntary Arrangement (IVA) (or a Trust Deed for Scottish residents). With these solutions you pay back an affordable amount over a fixed period (normally 5 years for an IVAor3 for a Trust Deed). After this time the remainder of your debt is written-off. During this time no interest is charged on your accounts and all creditor action is suspended. If you have equity in your home you are normally expected to release this by way of are mortgage or secured loan. These solutions may not be available if you have too much equity (because your lenders would then quite rightly expect you to use this to pay your debts) or if your debts are mainly with 1creditor (because this creditor may choose to vote against the process).
Other solutions available include getting a debt consolidation loan or remortgage. These can help reduce your monthly outgoings but can lead to your overall payments over the term of the loan increasing. You may also be converting unsecured debt to debts secured on your home. A consolidation loan can help save money if the interest rate on the new loan is lower than the interest being charged on your existing debts (especially if these are store cards or credit cards).
A short-term solution may be to transfer credit card balances to other credit cards that offer an interest free period or cash-back.
A less formal route than an IVA is s debt management plan. These can enable you to reduce your monthly outgoings to a more affordable level. A 3rd Party negotiates with your creditors to accept reduced payments and where possible to accept freeze interest/charges. Debt Management plans and advice are offered by Charities including CCCS, Citizens Advice Bureau and PayPlan and from a number of commercial companies including Harrington Brooks, All Clear Finance, Baines & Earnst and Gregory Pennington.
Your creditors may also accept a repayment proposal if you contact them direct.
The key to solving your debt problems is not to bury your head in the sand. Don’t ignore calls and letters from your creditors and if you are unable to cope seek help. Additional advice on becoming debt free is available at debt free.
Miles Grady is a Director of AllClear Finance Limited
Debt Free
One Advice Group