Consumer Debt Consolidation – Choices and Options

When you are facing a pile of debts – car loan, credit card debts, and mortgage – and cannot pay them all when they are due, you might consider taking out a another loan to pay off your debts. Before you get another loan or max out on your credit card, consider a consumer debt consolidation.

What is Debt Consolidation?

A consumer debt consolidation is a financial strategy used by consumers who owe several lenders. If you have several debts hounding you and you can no longer afford to pay them on time, you get a debt consolidation by borrowing from one lender to pay off your debts.

Types of Debt Consolidation

To consolidate your debts into one big debt, you consolidate all your credit card debts and concentrate only on one credit card company which accepts your debt consolidation proposal. Or you take out a cash-out home refinance and use the money to pay off several debts. You can take out an equity line of credit but for those who cannot put up security for a loan, they can use a personal unsecured consolidation loan.

What is Best for You?

If the world of finance is alien to you, get professional help from consumer debt consolidation counseling. The counselor will evaluate your finances before considering an option best suited for your financial situation. When everything has been sorted out, a repayment option is drawn up and negotiations with a lender are carried out. However, each of these consumer credit consolidation strategies has its pros and cons.

Refinance

You take out a refinance on your mortgage from your current lender. This is more convenient because your lender has your records and if you have built equity on your home, the lender will consider offering a refinance without much paperwork than that was required during the first mortgage.

A refinance offers the opportunity to switch to lower interest rate but then, it would also imply that instead of 15 years to pay off your mortgage, you extend the life of the loan by five to ten years. The time-frame will vary according to the loan amount.

Consolidation of Credit Card Debts

The average American family has at least 7 to 9 credit cards. With these numbers, it is not surprising that credit card debts can blow out of proportions. As a remedy for credit card debts, transfer your debts to one credit card that has an extensive credit line.

However, before you switch to one credit card, take note of the initial rate and transfer fees. Credit card companies offer a low interest rate but this rate expires and interest rates later rise. Choosing a credit card with 0% for a maximum of 15 months is good enough, but the transfer fee should not exceed 3% and there should be no additional interest charges.

Home Equity Loan

This is the best of the customer debt consolidation strategies if you have fixed mortgage with a low interest rate. In brief, you are going to pay two monthly bills because the first mortgage is not altered. What’s more, you can borrow more than you need and the second mortgage is tax deductible. Unfortunately, not all homeowners can qualify for this loan.

Credit Counseling