5 Tips to Consolidate Debt
Posted by admin under: Main Oct 31
Debt consolidation is the process of moving debts into one single debt, usually at a lower interest. These are some tips for getting best deal from debt consolidation.
1. Use Value of House
The lowest interest bearing loan is probably your mortgage. Make sure that you use the equity in your house to consolidate debt. For example, it is better to have your debt moved from a credit card to your mortgage. Because the interest rate will fall from 17% to 5%
2. Change Habits.
Debt consolidation is not a quick fix to your monetary problems. It doesn’t address the underlying problems which caused the debt in the first place. When you decide to consolidate your debts, take this as an opportunity to take a fresh look at how you manage your finances. Try to reduce your overspending. Plan ahead and if necessary look to increase your income. If you just consolidate your debts but continue to create more debt, it will merely delay the problem
3. Never Miss Payments without discussing.
Before you finalise a debt consolidation programme, make sure you continue to meet the minimum repayments. Otherwise it will adversely affect your credit rating. You are still responsible to meet all payments until after the debt has been switched.
4. Search for Cheapest type of loan
If you can’t consolidate your loans into your mortgage there are still likely to be better options than paying credit card debt. Some of the cheapest interest rates may be overdrafts from your bank or a personal loan
5. Drawbacks of consolidating into mortgage.
If you do consolidate all your debts into your mortgage there are several drawbacks.
- It will take longer to pay back the debt, therefore, it may cost more in the longterm.
- If you default on paying back the debt, you put your house at risk of repossession.
- House prices are no longer rising. In the US house prices have been falling. In the UK house prices may fall in 2008.
- Therefore, it is dangerous to consolidate debt in the hope that house price rises will reduce the % of debt.
See also:
- Top 10 tips for consolidating debt
Source: 5 Tips to Consolidate Debt
Wednesday, October 31st, 2007 at 3:08 pm and is filed under Main. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.