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Debt Consolidation is a very popular and much touted term. Whether or not debt
consolidation truly eases credit woes is a much debated topic. While debt consolidation
is rigorously promoted as creation as a single loan that is easier to handle and works
towards elimination of debt completely often the reverse happens and according to a senior
official in a credit corporation, “Debt consolidation is often a symptomatic relief and
not the cure.” One needs to ensure that what is being offered as debt consolidation by
several financial firms is not a mirage but a reality.
Debt consolidation can take the form of a debt consolidation loan, a zero-percent
credit card loan, or a home equity loan among other options.
Studies indicate that over 70% of debtors in the US who opt for debt consolidation
land up in debt once again and that to within two years.
• When consolidating debt you need to ensure that the money freed each month
is not used to fall into trouble once more. It is important to sat away from spending
just because you feel there is money available.
• Ensure that the interest rate on your debt consolidation loan is really low.
The debt consolidation companies offer attractive interest rates only to those with
good credit ratings. Calculate your present outgoings and make sure the debt
consolidation loan is lower than that. Never take the first offer in desperation.
Make the effort of comparison shopping and check with local credit unions what
they are offering.
• Never fall for the long-term loan trap. Ensure that the loan becomes
payable within 2-5 years other wise you will pay back much more than you owed to
begin with.
• Try and avoid a home equity loan. In case of any trouble and you are unable
to pay the monthly payments you will loose the roof over your head. The very same
individuals who promoted the loan as attractive will show no sympathy when you
default on payments. Check out in actuality how much you will save on tax. Use
an online tool to calculate how much you should borrow, see:
http://www.bankrate.com/brm/home-equity-advisers/borrow-equity.asp .
• If you are opting for a zero percent credit card loan ensure that the loan
will be re-aid in full when the offer term ends. Otherwise the money still owed
to the credit card will have to be repaid at a steep rate of interest. So take a
deep breath and read the fine print before signing for a loan. Very often zero
interest cards charge handling fess and so on, look for hidden charges that will
escalate your costs.
Consider opting for credit counseling. Very often debt management is a more
feasible option as in the long term you will pay less. For example if you have a
debt of USD20000 you may pay USD 8000 as interest and be debt free in say 5 years.
While if you take a 15 year home equity loan at 10% interest the interest on USD
20000 would amount to USD 19,000 approximately. So, getting professional help to
manage your debt may save you considerable sums of money. A credit counselor will
teach you essentials of money management and ensure that you don’t get into debt
again.
About Author
Barry Allen is a freelance writer for
Consolidate Debt , the premier
website for free Debt Consolidation Services for loans, debt management plans, debt
counselors, advice, loan payments and many more.
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