When Times Are Tough Restructuring Your Debt May Pay Off
People are being hit hard by our current economic situation, some of course more than others. Borrowing money just to hang on isn't the right thing to do although some have little choice. It's not easy planning ways to reduce your debt when you're barely hanging on to begin with. Still, while you can't ever get out of debt by borrowing more you can stabilize your situation by borrowing wisely.
In our credit rich, easy money culture we've conditioned ourselves to think about the size of a loan and the size of the monthly payments and not pay due attention to the interest charges. Even though they seem small, a few percent, the amount in interest you pay monthly can become significant when you have large loans or many loans outstanding.
So we continue to use easy credit as our means of getting by as if we could continue doing that forever, eventually getting by more and more by making minimum payments. All of a sudden we have a ton of debt and are trying unsuccessfully to pay for things we purchased long ago. This is where debt consolidation can be the answer to a seemingly unsolvable problem.
Debt consolidation loans are of course a form of borrowing but the difference here is, if done correctly, you borrow no more than you already owe and you pay a lower rate of interest and make lower, possibly much lower, monthly payments. So you haven't gone any deeper into debt and find yourself in a little better position financially than you were before.
There are other approaches you can try. Either on your own or with help of a responsible third party you can seek to have loan terms revised, with lower interest rates and lower monthly payments being the things usually pursued. You'll normally owe the same amount but will get payment terms which are more in your favor. If you are successful in doing this you need to make sure that you are applying discipline to your money management habits. If you default you probably won't get a second chance.
The most common type of consolidation loan is the home equity loan. If you're not a homeowner you will probably have to seek an unsecured loan which will be harder to find and will probably carry a higher interest rate. Still, you'll be better off if you are successful in finding a good consolidation loan as your monthly payments should be less and living within a sound budget easier.
Making your payments on a home equity loan is a must. It's better to lose your car that to face home foreclosure. If in doubt seek a consolidation loan that does not require putting up your home as collateral. Such a loan, generally an unsecured loan, will be harder to find and will probably a higher interest rate. Do some research and figure out which approach makes most sense to you or seek assistance from a financial adviser.
Whatever type of loan arrangement you end up making it's key that you put your household money management practices in order. Start working to a budget and spending wisely. Treat your consolidation loan as if it is the last loan you could ever get and put off purchases whenever possible until you have the cash to pay for the. Easy credit will return once the financial crisis is over but you don't have to follow the sheep and spend your way back into debt.
In our credit rich, easy money culture we've conditioned ourselves to think about the size of a loan and the size of the monthly payments and not pay due attention to the interest charges. Even though they seem small, a few percent, the amount in interest you pay monthly can become significant when you have large loans or many loans outstanding.
So we continue to use easy credit as our means of getting by as if we could continue doing that forever, eventually getting by more and more by making minimum payments. All of a sudden we have a ton of debt and are trying unsuccessfully to pay for things we purchased long ago. This is where debt consolidation can be the answer to a seemingly unsolvable problem.
Debt consolidation loans are of course a form of borrowing but the difference here is, if done correctly, you borrow no more than you already owe and you pay a lower rate of interest and make lower, possibly much lower, monthly payments. So you haven't gone any deeper into debt and find yourself in a little better position financially than you were before.
There are other approaches you can try. Either on your own or with help of a responsible third party you can seek to have loan terms revised, with lower interest rates and lower monthly payments being the things usually pursued. You'll normally owe the same amount but will get payment terms which are more in your favor. If you are successful in doing this you need to make sure that you are applying discipline to your money management habits. If you default you probably won't get a second chance.
The most common type of consolidation loan is the home equity loan. If you're not a homeowner you will probably have to seek an unsecured loan which will be harder to find and will probably carry a higher interest rate. Still, you'll be better off if you are successful in finding a good consolidation loan as your monthly payments should be less and living within a sound budget easier.
Making your payments on a home equity loan is a must. It's better to lose your car that to face home foreclosure. If in doubt seek a consolidation loan that does not require putting up your home as collateral. Such a loan, generally an unsecured loan, will be harder to find and will probably a higher interest rate. Do some research and figure out which approach makes most sense to you or seek assistance from a financial adviser.
Whatever type of loan arrangement you end up making it's key that you put your household money management practices in order. Start working to a budget and spending wisely. Treat your consolidation loan as if it is the last loan you could ever get and put off purchases whenever possible until you have the cash to pay for the. Easy credit will return once the financial crisis is over but you don't have to follow the sheep and spend your way back into debt.
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posted by Credit Counseling at
1:14 AM
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