Do you owe money to several different creditors and find it difficult to keep-up with the repayment schedule? If so, the chances are that you stand to benefit considerably from debt consolidation assistance.
Most people are surprised to discover how many options they have to deal with debt. Although most of us turn to a secured or unsecured debt consolidation loan, it isn't necessarily the best way to consolidate debt. Personal circumstances vary considerably so it's important to consider all of the different methods of improving affordability before making a decision.
Consolidate Debt Online with an Unsecured Debt Consolidation Loan
An unsecured loan for debt consolidation allows you to put all of your debts under one roof and make a single payment to creditors. This not only makes it easier to manage your personal finances, you can spread the repayments over a term of up to 60 months.
You can either borrow money from a bank or person-to-person lender, such as Prosper.com or Zopa.com. The cost of borrowing has risen in recent years, but an unsecured bank loan is usually a lot cheaper than an unsettled credit card balance.
Consolidation of Debt with an Interest Free Balance Transfer
You may be able to transfer money on several high interest cards to a zero percent balance transfer card. Although there is normally a 3% to 5% transaction fee, you will normally pay 10% less interest each year. A succession of transfers, known as stooging, can help you to save hundreds of dollars.
You'll only be able to get approval for an unsecured personal loan or balance transfer deal if you have a fair, good or excellent credit score. Lenders use credit scoring to underwrite the risk of the borrower defaulting so, if you have a history of bad credit, you'll probably need to provide collateral in order to borrow money.
Is a Secured Debt Consolidation Loan the Best Way to Consolidate Debt?
If an unsecured debt consolidation loan isn't an option due to an adverse credit history, you may still be able to consolidate debt online with a secured loan against the equity in your home. The lender's risk is underwritten due to the provision of collateral so they're far more likely to approve your application.
Although using the family home as collateral increases the likelihood of your loan being approved, it isn't for everyone. Should your personal circumstances change and you're unable to keep-up with the repayments, your home can be repossessed and sold to clear the outstanding balance.
Consolidating Credit Card Debt and Loans with a Debt Free Solution
A debt solution may be the best way to consolidate debt when you have poor credit. Borrowing money with a bad credit rating is either isn't impossible or too expensive for the purpose of consolidating your debts. A debt free plan is the main alternative to consolidating debt.
A debt free plan, such as a debt settlement program, involves negotiating with your creditors with the intention of eliminating up to 50% of the cumulative amount owed. You'll then repay the outstanding balance over a period of up to 3 years.
There is no reduction to the principal under a debt management plan, but you're able to repay the debt at an affordable rate. You may even be able to avoid further interest and charges. Both debt solutions involve a management fee of about 15% and are a voluntary arrangement with creditors.
Choosing the Best Way to Consolidate Debt
Selecting the right source of debt consolidation assistance isn't as difficult as it initially seems. If you owe less than $15,000 and have a good credit score, an unsecured debt consolidation loan or interest free balance transfer is preferred. If you have bad credit, you need to decide whether to proceed with a debt free solution or a secured loan for consolidating debt.
Sources
- "Knee deep in debt. " Federal Trade Commission (FTC).
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
Comments