The Advantages Debt Consolidation
Know the various advantages and benefits of debt consolidation through this article.
Why Debt Consolidation is Considered a Life - Saver for Many?
Debt consolidation proves to be the answer to many financial problems. Debt is something that has become part of the reality of almost all human beings. It gradually builds up, even without you noticing. First, you buy that fur coat you have always wanted, then a DVD player charged to your card, then a car, and the rest is history.
You would think that a $30 per month is not that much of a big deal. Paying for items by card makes purchases appear cheaper than they really are. Before you know it, your monthly payables are much more than you can manage. Worse, you may be facing the greatest financial mess in your life with too many debts than you can hardly manage. If you are facing a situation like this, then you might want to consider consolidating your debts before you drown in all financial worries. But the question still remains: Will debt consolidation really solve all your financial problems?
Well to start with, what advantages can you expect if you consolidate your debts? Here are some of the benefits that you can get out of debt consolidation:
Interest rates diminish, long term interest costs decrease. Consolidating your debt means you will be entitled to lowered interest rates, which simply translates to smaller overall monthly payments. You can allot a portion of this savings to pay part of the principal loan to minimize further costs. Interest rates for consolidation are usually provided as flexible by lenders, so you can negotiate accordingly depending on your circumstances.
Consolidation means one, single, solo monthly payment. When you consolidate all your debts, your lender clears off all your debts, covering secure and unsecured loans, credit card bills, medical bills and so on. You do not have to worry about paying tons of bills or taking note of payment deadlines as well as be imposed of additional charges due to delayed payment.
Tax deductibility. Debt consolidation loans for first or second mortgage may be tax deductible. This is an added plus, but make sure you check with your tax advisor as the IRS may have imposed some limitations without you knowing. For example, a second mortgage amounting to more than $100,000 is not tax-deductible.
Peace of mind. More than these financial benefits, the peace of mind that debt consolidation offers may be quite priceless. By consolidating your debts, you relieve yourself of the pressures and the burden of your finances. You do not have to deal with warning calls from those persistent collection offices.
Debt management is one of the most important keys to financial success. Though debt is rather unavoidable, the way you manage it makes a big difference to your overall finances. Whether or not you earn big paychecks each month, you have to make sure you spend only what is reasonable. Debt consolidation is one of the most effective ways to properly manage your finances. It is proven to be effective in getting you back on track into the right direction.
The Pros and Cons a Secured Loan
Secured loans make your creditors feel more secure about loaning you money. When someone takes out a secured loan, that simply means there is collateral to back up the money they borrowed. This could be a car, or more commonly, a house. There are pros and cons to getting a secured loan as opposed to a standard loan for debt consolidation.
Home Equity Line of Credit - Perhaps one of the most common secured loans is the home equity line of credit. This loan amount is based on how much equity you have in your home. Once you take out this type of secured loan, your house becomes collateral. The most positive aspect of a secured home equity loan is that the money you borrow is tax deductible. For instance, if you have $5,000 in credit card debt, you can roll that over into a home equity line of credit. The credit card payments are not tax deductible, but the home equity loan is. In contrast, standard debt consolidation loans are not tax deductible.
Interest Rate Advantages - Another advantage of using a secured loan for debt consolidation is the interest rate. For many people, credit cards are the source of their debt problems. Credit cards have enormous interest rates. Since secured loans are "secured" by collateral, they tend to have significantly lower interest rates.
After discussing the pros, it is important to understand the cons of using a secured debt consolidation loan. Again, many people use a house or a car to secure these types of loans. If you happen to default on the loan and cannot make payments, your house or car will be in jeopardy. A house is usually the largest asset someone owns. You do not want to put your most valuable asset at risk.
For some people, debt consolidation is the best option for their financial problems. Be sure to carefully weigh the pros and cons before choosing to use a secured loan for your debt consolidation.
Student Debt Consolidation
Available to meet the unique needs of the student. For example, if a student has outstanding unconsolidated student loan debt and is six months from graduation, then they should already be exploring those available options. The right student debt consolidation program can mean substantially lower monthly student debt payments, savings of thousands of dollars every year in total student loan debt balance, and the ease of just having to make one student loan debt payment. There is no cost or obligation to consolidate a student loan, so there is nothing to lose and everything to gain by exploring all student debt consolidation programs and options.
From reducing monthly payments by using student debt consolidation programs, to repaying student loan debt and improving credit ratings there’s always a way a student can improve their student loan debt finances.
First and foremost, consolidating all outstanding payments into one single sum simplifies the task of managing all their student loans and their payments. Instead of making credit card payments on a number of different credit card loans, students now only have to make a single student debt Consolidation payment.
Student debt consolidation leads to a significant reduction in rate of interest. This is especially true in the case of credit card debt consolidation. Most credit card companies command an alarming rate of interest, especially when behind in payments. Going for a student debt consolidation loan is much cheaper because the right student debt consolidation program companies provide a much lower rate of interest than those commanded by credit card companies.
Power down your debt
Make a list of all of your credit cards (including all consumer debt such as doctor bills, furniture stores and your home).
List the following in columns: the type of credit card, principle amount, regular payment amount, power down payment, interest rate, total number of payments left on the card, estimated payoff date. Put your list in order of how many payments are left from least to most. If you make a minimum payment of $55/month on one of your cards until it is paid off in full, you then have $55/month freed up to add to the minimum monthly payment for the next credit card. After you pay off the second card, the amount you were paying on that one can be applied toward the third card. By doing this, you will decrease the number of years required to pay off your credit cards from approximately 30 years to nine years.
Using this strategy, think about the other ways you can free up money. If you spend about $100 at Starbucks each month, think about spending that money toward your credit card payments.
Remember, money is emotional. We spend and make money based on emotional compulsion. Go back and see what you spent money on in the last week and how much you spent. It’s not how much money you make that matters, but how well you manage it that counts.