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7 Powerful Strategies For Debt Consolidation
Intro To Debt Consolidation
Getting out of debt can be a really complicated process if proper procedures are not followed.
Are you one of them that is financially swimming in hot water? Do you really know a solution?
Well, debt consolidation plan is the real savior that can really get you out of the situation.
Debt consolidation helps you pay off multiple loans at once. It is done with the aim of securing a fixed interest rate or a lower interest rate.
Now you may be eager to know the full details about debt consolidation. Well, here I will discuss all the details about it.
Typically, you might find that there are two types of debt, but each has different subtypes. Credit is one.
The credits are offered for fixed amounts and cannot be reused once they have been paid off.
You can have several types of loans and the following are the types of loans: Personal loan: this type of Loan It is offered for a certain amount of money.
A personal loan is granted for declared and undeclared use.This type of loan is processed through a bank or other authentic financial institution.
Secured loans are granted to anyone against property or guarantor, but unsecured loans are only granted to consumers with good credit ratings.
Mortgage loan: is a long-term loan and mortgage loans are made specifically for the purchase of residential or commercial real estate.
As a customer you can negotiate here to reduce the monthly payment.
Education Loans: This type of loan is specifically designed for educational purposes only.
Education loans are issued to pay for education bills, dorm fees, tuition, and other living expenses for college or university.
This type of loan is repaid upon successful completion of the degree. With this type of loan, you can apply for an additional grace period.
These are typical traditional
loans and the second type of debt is revolving credit.
It is very important to know what a revolving loan is. Unlike traditional loans, once the loan amount has been repaid, you can borrow the same amount of money again.
There are mainly two types of revolving credit that you can find in the market namely
- Credit Card
- Line of Credit
Credit card: Yes, we all use plastic money these days. You probably know that credit cards are referred to as plastic money.
Today, a credit card is the most common form of personal debt. According to recent surveys, almost every American has more than five credit cards on average.
Line of credit: In general, banks issue a line of credit and other financial organizations.
Provides a reusable source of funds and you can withdraw by check or cash.
Well have you probably have a good idea of the different forms of debt, but we’re not going to talk about debt, we’re going to talk about debt consolidation.
Now the question might arise…why have I told you so much about debt when it’s about the main topic is the debt? consolidation here.
Well, the reason for the is very simple; Without knowing what debt is, you may not understand what debt consolidation is.
Today everything seems fine in your financial world and you are happy and totally carefree, but tomorrow it could be be ready when you have to face a very hectic situation.
No one knows tomorrow. There are many situations in which people find themselves unable prove to be able to settle the current debt obligations.
Due to the recent financial crisis, many people have lost their jobs and are simply unable to pay their debts. What if you are one of them too? Have you ever thought about it?
The devaluation of many houses, land, which leads to negative equity, is one of the main reasons why most people still don’t get rid of the burden of debt.
Especially after the last real estate bubble burst, most homes in the US are one of the more practical ways to pay off insurmountable debts are debt consolidation .
There are generally two types of debt consolidation, but there are two forms: Home Equity Loan and Negotiated Debt Settlement
Home Equity Loan
This is one of the most effective debt consolidation solutions for mortgage customers.
This type of debt consolidation loan allows the customer to refinance their mortgage. Here the customer can use the saved capital as security for the loan.
Here, the consumer can pay off higher-interest loans and credit card loans with the same amount.
With the help of this home equity loan, homeowners only have to make a one-time payment of
per month, which is definitely less than that monthly total loan amount of all outstanding loans.
Negotiated Debt Settlement
This is another type of debt consolidation loan. It involves the involvement of a third party that specializes in debt consolidation.
Obviously you want to know exactly what services you are receiving.
Typically, the third party will personally contact each of your creditors on your behalf. Here the third party negotiates an amount and you have to pay that amount every month.
The advantage of this type of agreement is that the negotiated amount is always less than the actual loan amount.
All you have to do is pay the money to the third party and they will make the payment to each of the creditors.
Like any other financial planning, debt consolidation requires some smart strategies. The more effective your debt consolidation strategy is, the easier it will be for you to get out of debt.
Now it’s really important to follow some effective strategies and here I am going to discuss some highly effective debt consolidation strategies with you.
Strategies For Debt Consolidation
Make a Budget-
Making a proper budget is the most important thing that you should do. Do you know what the purpose of making budget is? A budget will help you to track the incoming and outgoing money.
A well developed budget always helps people to make a plan so that they can live below their means instead of living beyond it.
Yes, it helps to change the entire mindset about money so that people can save more money and the more money you will save the sooner you will be able to pay off the debt completely.
Budget making is the most important debt consolidation strategy that you can implement.
Sell some assets in order to pay your debts-
I am sure that you know about E Bay. Do you know how much money E Bay makes each year? Billions! If you have excess amount of assets then you could easily sell some of them to get those debts under control.
Pay more on debts on a monthly basis-
If you pay more than the minimum amount then you will be able to get rid of all the debts sooner and easily.
Try to do the same thing with all of your debts that you can afford. It would be better if you do this than with a loan with the higher interest rate.
Restructure your mortgage payment-
If you want to reduce the mortgage loan payment amount in a significant way then you should implement a bi-weekly mortgage system. It will help you to reduce the rate of interest significantly.
It will surely help you to pay off the loan amount completely.
If you have your own house and want to obtain a lower interest rate then a refinance could be the best option.
But if you are unable to get a lower interest rate for your mortgage loan or there will be a penalty then you can go for equity loan or line of credit.
A loan secured by other personal property-
If you have any expensive car or boat then you can easily get a loan against that and you can use the same loan amount to pay off other debts.
An unsecured loan-
Unsecured loans are the only option if you do not have any other loan options.
How To Be A Good Debt Manager
The 1st smart secret to a budget is to set a goal. What do you wish to accomplish? Do you want to correctly appropriate your revenue into bill payments?
Do you wish to put an amount aside for a huge purchase or a large investment? By having a goal, you’ll be able to shape your budget to best serve your interests.
Secondly, you’d want to take note of where your cash commonly goes.
This includes bills, major but regular purchases (like market costs, healthcare costs, and the like), and daily miscellaneous purchases.
Only when you list where you know your cash commonly goes will you be able to distinguish which expenses you may do without.
Once you’ve identified these regular expenditures, take into consideration what you may cut down on.
How much do you spend on your every day caffeine fix in the morning?
How much do you spend on paper deliveries to your front door?
The paltry $2 or $5 of these little purchases cumulatively translates to more than $3600 a year!
Rather than buying your expensive latte or reading the paper in print, put aside the amount you’d commonly pay for these little routine purchases in a little container.
You’ll be surprised at how much you’re saving out of your old budget.
Being indebted is a vicious cycle on its own. You’re talking about continuous payments, let alone large interest rates.
The best way to deal with this is to pay the lower limit on all of your debts in order to avoid paying extraneous late fees.
Whatever money excesses you may have, you may opt to add on to the payments you make in your greatest debt.
This way, you’re centered on getting the greatest debts first that cost you the greatest interest rates.
Doing this more and more, you’ll be amazed at how much you’ll take off your large debts.
The last and most crucial step is to jot down the amount you earn the sum you spend. You may make use of computer cash management programs, or make database sheets of your own.
Make a system that works for you and will help you keep track of your monthly budgeting progression.
Factors To Be Considered In Debt Consolidation
Consolidating charge card debt is indeed a great option in more than one sense.
Not only do you get relief from the speedy increase in your charge card debt, but likewise get additional advantages too.
Offers for consolidating charge card debt are in abundance and are really attractive indeed.
Almost all the offers for consolidating charge card debt have an initial low APR period during which the APR is commonly 0% (or some low figure).
As a matter of fact, this is one of the main things which make consolidating charge card debt a really attractive option.
Besides this low APR, the offers for consolidating charge card debt likewise include things like no interest rate on the purchases made during first five months (or some other initial period) of balance transfer.
This is another thing that lowers the speed at which your charge card debt extends.
So these are the two most important advantages that charge card suppliers deploy to attract individuals into consolidating charge card debt with them.
Then there are additional advantages which include things like additional reward points on the member’s reward program of the charge card you’re consolidating charge card debt to.
These reward points may be redeemed for other attractive goods/rebates/rewards etc. Occasionally, the new charge card (i.e. the
one you’re consolidating charge card debt to) may be a charge card that caters more to your present spending needs both in terms of the charge limits and the way you spend your cash.
For instance, the new charge card could be a co-branded one offered by an airline that you’ve started travelling with very frequently and consolidating charge card debt on such a card might be much more advantages as compared to your current charge card which was based on your needs at the time.
The charge card you’re consolidating charge card debt with may open up discount offers to you.
Student Loan Consolidation
Over time, the student loans you have applied for have been specified with various variable interest rates.
Note that the keyword here is variable. While the loan you took out might initially offer 3.5 percent, as interest rates rise, the interest rate will actually increase.
So if you have two or more of these loans, there’s a good chance you owed amounts at different interest rates, and these interest rates can go up and down each year.
Considering that interest rates have nowhere to go, but it’s certainly a safe bet that the debt you’ve racked up will add up faster than if you were thinking about consolidating a student loan.
By thinking about consolidating and maintaining your ten-year payment plan, you may be able to secure your plan interest today’s current lending rates and save about $ in the long run.
Aside from that, all these loans which might come from different lending companies or banks can be a burden.
So when you consolidate, it means you deal with just one exclusive company and one payment instead of multiple have to do.
Apart from that, you have an incredible opportunity to get additional bonuses such as: B. Payment and rate cuts if you pay your debts on time over a period of months.
These benefits are also possible if you have your monthly payment automatically withdrawn from a checking or savings account.
With government consolidation loan programs, it is interesting to note that there are actually no strings attached.
This is supported by the fact that you can apply for the student loan at any time during the grace period or even the repayment period. However, in order to consolidate student loans, there are a few considerations to keep in mind.
To consolidate student loans, keep in mind that this is usually done during your grace period.
At this point, the lower school interest rate is applied to approximate the weighted average fixed rate for consolidating student loans.
And once the grace period on your loans has expired the higher repayment interest rate is applied to approximate the weighted average fixed interest rate.
Given this process, it is understandable that your fixed interest rate for consolidating your government student loans would be higher if
consolidated student loans after your grace period. ;
And if you’re interested in consolidating loans, you should understand that, too the student loans are already disbursed, student loan consolidation is still allowed and beneficial.
Therefore, if you consolidate student loans now, you are already locking in the interest rate on your government student loans while interest rates are still low
More Tips For Debt Consolidation
With a debt consolidation plan consumers are able to get rid of debts quickly and conveniently.
Although this loan does not pay off all debts at one go, it surely takes care of them in a more systematic manner.
A person is no longer required to make innumerable calculations for paying off monthly debts (from loans and credit cards).
Each and every month needn’t be a month of low finances and heavy interest payments. A good consolidation plan immensely assists in managing all financial debts responsibly and wisely.
Go for popular and authentic professional consolidation In the market there are innumerable debt consolidation plans, each aiming towards reducing financial pressure for the consumer.
When such professional help is used, one can easily shift the payment stress from oneself on to the consolidation plan.
This single loan will handle all the personal loans, car loans, student loans and credit card loans. In-return the consumer is required to pay a single debt which is lower in interest.
There is only one payment to be calculated, only one date to be remembered and only one payment to be made every month.
This is a gift in disguise as it gives the consumer a break from the financial stress.
However, it is highly important to get a debt consolidation plan which fits otherwise a consumer may suffer monetarily.
It is important to check the success records of the consolidation plan.
Online reviews of consumers and personal experiences of family and friends are a great help while deciding on a good consolidation plan.
Making yourself aware about credit management methods Getting into an appropriate debt consolidation plan will benefit the consumer in a big way but a bad consolidation plan will lead to total disaster.
It is very essential to gain good knowledge about what a debt consolidation plan has to offer. Reading articles written by previous consumers and financial experts will surely improve consumer’s debt consolidation management skills.
Going for debt counseling
Many consumers like to go for a professional consultation before debt consolidation.
As a consumer you may not be so sure about the guidelines of a good debt consolidation plan, so professional advice helps in a major way.
There are several consultants who are known to give beneficial advice which can improve the credit health of a consumer.
Improved credit would automatically generate larger finances helping people consolidate their credit in a very wise manner.
Successful debt consolidation plans are initiated by consumers who are not obsessed with their finances.
On the contrary, they are the relaxed and knowledgeable consumers who are looking towards a long term improvement of credit.