Posted on September - 20 - 2010

Debt consolidation options and credit counseling: No instant fix

You’ve paid off your credit cards, but it doesn’t take too many unplanned expenses to rocket your credit card balances back into the stratosphere. Here are options for getting the damage under control.

Debt management methods: One size doesn’t fit all

  • Debt consolidation using home equity financing: Home equity loans have traditionally offered homeowners with enough equity an opportunity to borrow against home equity at lower rates than typically charged for personal loans or credit cards. Current housing markets have eroded home equity for many, but if you can qualify for a home equity loan or line of credit, this can provide funds to pay off multiple balances and consolidate several payments into one home equity loan payment. Borrowing against home equity can be risky; if home values fall, you could lose all of your home equity or owe more on mortgage loans than your home is worth.
  • Debt consolidation loans: Consolidating multiple bills into one account with one payment and lower finance charges offers convenience and may help you pay off your debt faster and cheaper. The problem with unsecured debt consolidation loans is that they can be difficult to find unless you have good to excellent credit. Total your credit card balances and ask your bank or credit union about taking out a personal loan for the amount you need. Make sure to compare the annual percentage rates (APR) for your credit card accounts against the APR for an unsecured debt consolidation loan. A debt consolidation loan can help you clean up smaller bills.
  • Loans from family or friends: In short: Don’t go there. Borrowing from relatives and friends can cost far more than the APR of your credit card debts. Misunderstandings and unpaid loans have caused many fall outs between families and friends. It’s not worth the risk.
  • Vehicle title loans: This is a risky solution to pay down credit card debt; if you can’t make payments, you risk losing your vehicle through repossession.
  • Consumer credit counseling and debt consolidation: Certified credit counseling services offer three services. They evaluate your finances and develop a cash based budget, they assess your credit card debt and negotiate affordable repayment terms based on your new budget, and they act as a debt consolidation plan by collecting the amount you agree to pay and distributing it among your creditors. Consumer credit counseling and debt consolidation services typically charge moderate fees for their services, and can generally arrange payment according to your ability to pay.

Knowing how much you owe and which options can work takes time and research, but unburdening yourself from credit card debt is a great investment of your time and effort.

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