Debt consolidation frequently works as a means to obtain debt relief for debt-struck individuals. If you can reduce your monthly payments and interest rates and simplify your budget, then there is nothing better than that. Debt consolidation loans are somewhat more intricate than other loans. This is due to the fact that these loans are used to pay off your various loans and takes into consideration your particular consolidation requirements.
Some simple steps to obtain debt relief through debt consolidation
Following are some basic steps that can help you attain debt relief by consolidating your debts:
1) Make a list of your debts
Debt consolidation loans would not work in your best interest if you don’t make an all-inclusive list of your debts. Include your consumer loans, credit card debt, student loans, utility bills and any other debt you have prior to researching debt consolidation loans.
2) Talk to your bank or credit union
If you’re a reliable customer, chances are high that you can qualify for a debt consolidation loan from your own bank or credit union. Your own bank might be more co-operative than other banks. However, you should also shop around to compare closing costs and interest rates of other consolidation loans.
3) Think about a home equity loan
If you have some equity in your home, a home equity loan can work as a useful solution to consolidate your debts. However, you must cautiously think about the pros and cons of this option. The interest for home equity loans is tax-deductible. On the other hand, if you can’t pay off the mortgage afterwards, then you have the risk of losing your home since you have not been able to pay off the debt consolidation loan and the mortgage as well.
If you are facing foreclosure, getting debt relief through debt consolidation or debt settlement may be the key to keeping your home with a more affordable payment
4) 0% balance transfer credit cards
You can consolidate your debts with a 0% interest balance transfer credit card. These cards are offered by a number of credit card companies to draw customers. Obviously 0% interest rate is more attractive than a home equity loan. But if you can’t pay off your balances within a specific period, they would hit you with interest rates as high as 18%. Hence, you should not shift your balances to a 0% balance transfer credit card if you feel that you can’t pay them off within the introductory period. Just ensure that there are no prepayment penalties.
5) Include closing costs and other fees and work out recovery time
By including closing costs and other fees, work out the number of months it would require to recover your closing costs through your monthly savings. Let’s take an example. If your monthly consolidation payment is lower than your previous payment by $200, then divide all your additional costs by $200. The outcome is the number of months it would require you to make debt consolidation a deserving option.