Spinning Your Wheels With Debt
If you are like most consumers, you have a healthy amount of credit card and other revolving debt. If things are “tight,” you are making minimum payments of this debt and seeing most of those payments go toward interest. The balances of your debt are being reduced by just a few dollars each month, and you see no end in sight. Add to that the fact that those minimum payments are already stretching your monthly budget, and you have a situation which will not change for the next 30 years, short of winning the lottery or a visit from the “Prize Patrol.” You started out with great plans for your future, and are now discouraged and resolved to a lifetime of debt. Debt consolidation can help your future dreams come true, and you should consider it as a major step in correcting your current situation.
What is Debt Consolidation?
Wouldn’t it be nice if you could lower your monthly debt payments and begin to put some money away for those future dreams? Debt consolidation can make it happen. In its simplest form, consolidation involves getting a new loan which you use to pay off all existing credit and revolving debt. The goal is to get a reasonable interest rate on this new loan and to secure a payment which is significantly less that the combined total of the payments you are now making each month.
What Are the Options?
Depending upon your current circumstances, you will want to select the option that is right for you, from among the following:
- If you have a home with equity, you may want to consider a cash-out refinance. You will secure a new loan on your home, taking out enough cash to pay off all debt. With interest rates currently declining, and with a good credit score, you will be able to get payments which are far less than your current “bad” debt obligations. This is a great option so long as you commit to cutting up your credit cards, reserving only one for emergencies. This will take self-discipline and self-control, so be certain you have the stamina for such a move.
- If your credit is good, you may be able to consolidate current debt onto new credit cards with lower interest rates or even 0% rates for an introductory period. Read the fine print carefully, and be certain that you know when the introductory rate ends, for you will need to look for another introductory rate card at that time. This can be a risky endeavor if you do not get rid of your old cards and cannot resist temptation to continue to buy.
- If you belong to a credit union and your credit history is good, a personal consolidation loan may be an option. Generally, credit unions have lower interest rates than regular banks or other finance companies, so explore this option. Again, cut up the cards!
- If you have a 401K, you may be able to borrow from it. Be careful, however, and make certain you understand the specific repayment plan. You will be able to get a lower payment with this option. (Have you cut up your cards?)
- A bill consolidation professional may be able to help if your situation is more serious. There will be fess involved for this service, but you may be able to get a reduced total debt amount through this option.
Remember those dreams you had? With a lower payment, you now have additional money each month. Begin a regular savings and investment plan so that your money begins to work for you by earning interest. Resolve to resist any purchase unless you have the cash. And sleep well at night.