Debt Consolidation

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Debt Consolidation: Finding the Package That's Right for You

There are many factors that can lead to incurring too much debt. Fluctuating interest rates, high inflation, unemployment, and dramatic upturns in the cost of living all contribute to fault-free personal debt crises for many. If you find yourself in rising waters, it's time to explore your options and make a move. If you are currently on a collision course with disaster, the worst thing you can do is to do nothing. If you are a homeowner, the first two options to consider are taking out a second mortgage in the form of a home equity loan, or, if your current mortgage has a higher interest rate than the rates available to you today, refinancing your home with a cash out refinance. If neither of these options are available to you, this is probably a good time to visit with a debt counselor to explore your other options before you find yourself facing foreclosure or bankruptcy, or simply incurring major damage to your credit score through a long string of late payments or credit card defaults.

Whether you chose a mortgage-based debt consolidation loan, or explore other options offered by debt counselors, it may be possible to reduce your monthly loan payment bills to a single, affordable payment, and that can make a world of difference

Debt Consolidation Loans

When considering a debt consolidation loan, whether a refinance or second mortgage, remember that if you cannot meet the new terms, your home may remain in jeopardy, so don't overextend yourself with more loan that you can afford to repay. And be sure to weigh in the value of any home equity that you may be sacrificing to obtain the new loan. Try to leave enough equity available to be able to sell the some should the need arise. If you owe more on your house than it is worth, then you will not be able to sell it without coming up with the difference somehow. That has placed some homeowners in a position where they could not afford to sell their home.

If you have an appropriate amount of equity, or if are committed to remaining in the house long enough to re-establish equity in the home before selling, then a debt consolidation loan may be a very attractive option. When considering the possiblity of rolling one or more higher-interest rate loans into a new, lower-interest rate loan, do the math carefully. In addition to comparing the total interest you will be paying per month or per year on the old loan(s) versus the new loan, also compare to total interst you will be paying over the lifetime of those loans. Even if the new loan carries a significantly lower interest rate, you may end up paying more interest over the term of the loan the new loan carries a longer term than the original loan(s). LoanBiz provides mortgage calculators to assist you in making this determination, such as the debt consolidation loan calculator.

Debt Counseling Services

If a mortgage-based debt consolidation mortgage does not end up being a violable option for you, your best bet may be to consider debt counseling services. Services offered can vary quite a bit from one counselor to another, so speak with more than one to explore all your options. For each offer, consider both the short-term and long-term impact to your finances and to your credit. Some options, such as re-negotiating the amount, term or interest rates associated with your existing loans (credit negotiation), can have a negative impact on your credit score in the short term, but may still be advisable, because they can vastly reduce the chance of incurring more significant, longer term damage to your credit score. Going into default, declaring bankrupcty, or entering into foreclosure can devistate your credit for years. These worst case scenarios should be avoided at all costs.

If you are starting to get calls from creditors, or you're drowning in a sea of credit card debt, student loans, back taxes, signature loans and other debts, you owe it to yourself to begin exploring all your options. Speak to a loan officer or debt counselor right away. Take action to preserve your credit.

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