Debt consolidation can be a very ugly word but when one
finds his finances getting out of control, the only viable option is to take
out a debt consolidation loan. However before one takes that step there are a
few vital checklists or/ and requirements one should have and do.These are:
1.
What is your real motive for wanting to
consolidate your debt? Is there no other viable and more attractive option?
Also since the basic principle of debt consolidation is that of taking out a
single large loan and using this loan to clear all existing debts, a situation
which results in lower payments over a longer period of time, thus making you
to eventually pay more, it is advisable to
take an alternative option if it is available.
2.
Endeavour to pay more than the required minimum
monthly payments off your credit card debts if possible, with a target of
clearing all by the next 12 to 18 months.
3.
Sell your assets to clear your debts. This is a
more preferable route to take. Instead
of rescheduling your debts, you can try pay off some or all of your debts by
selling some unwanted valuables and other items. You can sell to dealers, on
EBay, place adverts on classifieds, even sell special books on Amazon. If you
own your own house and the debts are astoundingly high, downsizing might be a
better option in order to release equity.
4.
Mortgage/ Re-mortgage: if you own a property or
your own home, you can access the lowest interest rates available by taking out
a new mortgage to pay off your existing mortgage (if there is any)and also get
enough funds to repay your other debts. Should paying out your existing
mortgage invite sanctions in terms of penalty charges you should take a second
mortgage with your existing lender. The interest rate on this is most likely to
be higher than the first option.
5.
Get a secured loan with a different lender: In case you have missed out already or have
been late with a payment and it has affected your credit score and it has
become too low for your mortgagor, a secured loan with another lender is an
option. However a secured loan under these circumstances is much more expensive
and the lenders are quick to repossess your home if payments are missed. You
should only take this route if you are very certain of making the payments.
No matter how bad your credit history is,
as long as all your payments for the next 1 to 3 years are made, you can
replace the loan with either a mortgage or a re-mortgage as soon as your credit
score improves. Always make sure you read the fine print in the agreements as
some even carry penalties for early payment of a secured loan.
6.
Unsecured Loan:
If a property or other assets are not readily available, an unsecured
loan is another option. However an unsecured loan is usually for a shorter
period of time, up to a maximum of seven years. As a result of this the monthly
payments tend to be higher but the debt reduces faster. As there is no security
this loan usually comes with a higher interest rate.
7.
Other Assets Secured Loan: Assets such as expensive cars, boat or
airplane can probably be taken as collateral for a loan. However the interest
rate will be far higher than the one secured by property. So if one’s property
is not available for whatever reason, getting a loan based on other assets is
an option.
8.
The Credit Card Option: This option is the best for you if your debts
are relatively low and you have a good credit history. You can apply for
another card with a 0 percent or low interest balance that could be a better
alternative to a debt consolidation loan. Take advantage of the 0 percent
balance transfer if you are sure you will be able to repay all of the debts in
the balance transfer period. However, if you would still have a sizable debt at
the end of the balance transfer period, take the permanent low interest rate
option. Kindly note that this usually attracts between 2 to 3 percent charge on
the balance transfer. In order to make sure you do not fall into the habit of
incurring debts again you should close all paid off accounts and cut up all
your credit cards.
9.
If you are barely managing to make the minimum
monthly payments on your credit cards or your total credit debt keeps
increasing monthly, then debt consolidation is definitely an option to really
consider.
10.
Do your homework: do an in-depth research on all
available options before making your final decision. Kindly note that you might
need to marry some available options to suit your particular situation. Speak
with several mortgage or loan brokers or lenders in order to get the best
option for you.
