Personal Loan to Service the Credit Card Payments
Credit card debt is widespread amongst the average American household and seeking ways of consolidating debt usually means utilizing the equity in ones home or seeking a personal loan to service the credit card payments. Using the equity in your home to apply for an equity home loan and directing the funds towards debt management is an excellent method for getting your house in order in regards to your finances.
A personal loan without collateral may sound inviting but rest assured any financial institution or broker is going to want a higher return for the added risk. Using the equity in ones home has become a popular form of liquidity to finance and consolidate existing credit card debt, however not without its risks. Be sure you read the fine print & beware of the risks of defaulting on any repayments when using the equity in your home for a equity home loan as you could end up losing your family home to your creditors should you fail to meet the repayments.
Debt consolidation for some means digging into their 401K for immediate relief to the detriment of their future well being. Immediate relief from credit card debt and the high fees and interest associated with such debts is a huge incentive for some to look for the 401K alternative. The compromise to such action is that you are forgoing future savings and security for immediate relief, but if the timing is right and you are confident of repaying the loan it certainly is a viable proposition. It is a very appealing short term debt solution which has its benefits as well as draw backs.
It is always wise to stack the advantages against the disadvantages in anything dealing with your finances and when formulating a wise debt management strategy. Any unforeseen event which can disrupt your repayment schedule could mean penalties due in the form of tax installments or the fulfillment of the principal on the borrowed loan.
Tax perks when saving with a 401K account are reduced when borrowing off your retirement, as you are reimbursing the account with after-tax dollars.
Be sure to negotiate a better interest rate on any repayments with any loan whether it be a personal or a home equity loan. The higher the interest rates, the higher the repayments, the less disposable income that is left for savings or other pleasures of life so ensure you manage your credit card debts first as they carry the highest interest rates of any form of credit.
The rate you are able to negotiate your interest will be fixed for the duration of your personal loan and you will be required to make monthly installments to service the loan which will be at a rate much lower than any credit card debt you are carrying. Undisciplined habits of making late and overdue credit card payments tends to incur extremely high fees and even higher interest rates which can become a major problem to most budgets.
A savings account allows you the luxury of redirecting resources to areas of debt which have the potential to erode ones worth very quickly if left unchecked. When you compare the interest rate you earn on a savings account and the cost of credit card debt it makes little sense not redirecting funds from you savings account towards servicing debts elsewhere? Be smart and service your credit card debt before setting up any high yield savings account, you will be thankful you did in the long run.
Your Credit Rating
If you’re in debt, your credit rating is extremely important because it represents a significant part of your ability to get out of debt. The better your credit rating, the easier you’ll find it to refinance your debt, cutting your monthly repayments and leaving you more money to pay off your debts in a shorter period of time.
However, there are so many credit myths doing the rounds that it’s difficult to know what might affect your credit rating. In fact, the gap between what people think and what actually affects credit ratings has grown to an unprecedented level.
For example, more than 50% of people don’t understand what a credit rating is, how it affects their ability to borrow, and more importantly, how it affects their ability to get out of debt. So here’s the biggest credit myths and the real truth behind them.
If You’re On A Credit Blacklist Your Credit Rating Will Be Poor
This is one of the most popular credit mistakes. It’s also the myth that’s furthest from the truth. So let’s get this straightened out right from the beginning. There is no credit blacklist. It just doesn’t exist.
Yet that doesn’t stop millions of people from believing in it. More than 40% of people who are refused credit blame their situation on some mythical list that bans all lenders from granting them a loan.
If you are refused credit, the only reason is that your credit rating displays a financial history that makes lenders nervous about your likelihood of repaying their money.
Lenders like continuity. They like lending to people who have a history of making regular loan repayments on time because they can be more confident that they will get their money back. That’s why credit reports carry historic details of the loans that you’ve applied for, been granted, paid off, any defaults, previous addresses etc.
The practice of red lining, where lenders discriminate against individuals or whole communities on the grounds of gender, religion, ethnic origin, race or sexuality, is illegal in many parts of the world, and due to competition among lenders is less of a problem than in the past.
So if you want to increase your chances of being granted a loan at better rates, you don’t have to escape from a blacklist, just provide some stability to your credit history. Try to stay at the same address for a number of years, show lenders that you have the ability to repay a loan to completion, and make sure that you’re registered to vote.
Your credit report will state whether you’re on the electoral register and lenders place great emphasis on this fact as it helps them to double check who you are and where you live.
Your Credit Rating Is Set By The Credit Reference Agencies
This is also another credit myth that’s complete and utter rubbish. But more than 50% of people believe that credit reference agencies set credit ratings.
No,credit reference agencies just collect information about your financial history and present the facts in the form of a credit report. This includes information about your existing sources of credit (personal loans, credit cards, mortgages), your repayment history and whether you have any payment defaults, court judgements or bankruptcy orders against your name.