Everything Consumers Should Know About Debt Consolidation

Believe it or not, falling into a debt trap is easier than you could ever imagine. There is a possibility that you’ll become injured at work. Then, you’ll be unable to generate an income. Alternatively, there is a chance that your business venture will fall flat. Thousands of people get into debt each and every day in the United States, so nobody is invulnerable. Debt consolidation is a great way for those in debt to get a head start in paying off that debt. Below, you will learn all about consolidation and its perks.

Understanding Debt Consolidation

So, what is debt consolidation? Well, it is actually taking out a loan and getting yourself into further debt. Of course, there is a catch. Through debt consolidation, the loan is utilized to pay off all of your debts. If you were initially in debt with three or four companies, the debt would be consolidated into a single debt. Then, you would be required to pay back the lender for the consolidation loan and nothing else. Ultimately, debt consolidation is eliminating multiple debts and transforming it into a single debt. This might not seem like a big deal initially, but it offers a wealth of benefits.

Secured And Unsecured Loans

Remember that debt consolidation can be done with a secured or unsecured loan. A secured loan is safer for the lender, since you’ll be required to put certain property up as collateral. This could be your automobile or your home. Unsecured loans are based on your credit profile (credit score, income, debt to income ratio, etc). While the unsecured loan might seem like a better idea, it is important to remember that this type of loan usually comes with a higher interest rate for most people. However, personal loans can still be beneficial since the interest is amortized over time.

Lower Interest Rates

So, what are the major perks of debt consolidation? Well, the benefits depend solely on the type of loan in question. If you’ve taken out a secured loan, there is a good chance that your interest rates will be lowered significantly. As mentioned above, unsecured loans can still help you get out of debt faster. These type of loans to consolidate credit card debt, can even help you improve your score by up to 40 points (according to Payoff). Plus, you’ll lower the interest rate by a considerable amount and that will help tremendously. The interest causes your debt to accumulate over a period of time.

With a lower interest rate, your debt will remain lower so you can get it paid off quicker. In some cases, the interest may be tax deductible!

No Risks

If you opt for the unsecured loan, you’ll be able to get the money you need without any risks to your property. As mentioned above, there is no need to put up any property as collateral with an unsecured loan. Even if you default, you will not have to worry about losing your vehicle or home. Just remember that unsecured loans come with higher interest rates. Therefore, if it often better to go ahead and put your property up as collateral to avoid excessively high interest rates.

Nevertheless, both forms of debt consolidation are very helpful. 

Make A Single Payment

Often time’s people end up in debt, because they can’t keep track of all the bills they have and when exactly each is due. This leads to a lot late charges and additional fees that would not normally apply. However, when you get your debt is consolidated, this is something that you do not have to worry about, because everything will be complied right into one easy payment. This makes it incredibly easy to keep track of everything. If you’re a forgetful individual, you will most definitely benefit from debt consolidation. This procedure will make your bills much easier to keep up with, so you can guarantee each is paid on time each month!

Simple Ways You Can Stay Out Of Debt

Debt – the ominous word that hangs over us all. It is so easy to have payments due to a number of individuals or institutions. One does not need to live frivolously to have overwhelming amounts of remunerations to make. The simple act of trying to keep your head above water in tough economic times can lead you down the path of debt.

Fortunately, there are some things that you can do to stave off this terrifying concept. A few adjustments to your lifestyle will help you get on the right track to staying away from the clutches of debt. You can always get advice on your finances from experts such as a Phoenix bankruptcy attorney if you need a helping hand. Here are some ways that you can prevent debt in your life:

A Financial Plan

The first thing you need to do is get a stock of your income and your spending habits. It is time for you to come up with a financial plan for your life. For the duration of a month, collect all your receipts and note down all of your expenses and purchases. At the end of the month, gather all of this information and sit down with a calculator. This is how you tailor your spending habits.

At the end of the month, you should endeavor to have a little balance from your income. To do this, you must spend less than you earn. This is why it is a good idea to look at what you are buying. How many of those goods and services do you actually require? Once you stick to the items you really need and trim the excess, you will find yourself spending less money on unnecessary things.

Avoid Monthly Installments

Many companies and retailers tend to lure customers in with easy and prolonged payment plans. They allow you to purchase a product and then let you pay back the amount in monthly installments. There is, of course, a considerable amount of interest added to each of these repayments. You end up spending a lot more money than you ever intended. The alternative to this is to simply save up for whatever it is that you wish to buy. In the event that you do not need something urgently, simply put aside some money each week or each month. This will slowly amass to the amount that you require. You can then just buy the product outright without any other additional expenditure.

Credit Cards

It goes without saying that credit cards are one of the main reasons for debt in modern times. This does not necessarily mean that you have to give them, however. After all, it is quite difficult to live in this day and age without these cards. You instead have to ensure that you do not go overboard when using your credit card. You should know your limits. You should also only use the card when you know that you will be able to pay back the amount in full at the end of the month. It is those late charges that eventually pull you under.

It may not be easy but it is certainly possible to live without impending debt. You simply have to monitor your spending habits and ensure that you are not spending more than you earn.

 

“Good debt” is for dumb people

Screen shot 2009-11-18 at Nov 18, 2009, 7.45.23 PM

I was facebook chatting yesterday with one of my loyal readers. She was discussing her car loan, when I mentioned my student loan. She said “At least your student loan is ‘good debt’.” She put good debt in quotes because she knows (and I know) there ain’t no such thing as good debt (did you know ain’t IS a word?).

Typically student loans and mortgages are considered good debt. Why? The thought is, with student loans you obtain a degree, and with a degree you get a higher paying job. For mortgage, you take on a loan, buy a house, and sell the house for a profit. Nice idea right?

Have you read my blog’s title? Is it Punch Bad Debt In The Face? I don’t think so suckers. There is no such thing as good debt. Debt is debt…period. A degree doesn’t guarantee higher income, no more than your home guarantees increasing in value. So don’t fall for the trap and think you should keep Sallie Mae around for the 20 year visit she is planning to take.

It’s time to change the classification of debt. There is bad debt (which we all know as credit cards, payday loans, etc) and not-as-sucky-but-still-pretty-crappy debt (student loans, mortgage). Whoever decided to call some debt “good” was a genius. Heck, I wonder how much money that label has made the banks. Probably at least ten dollars 🙂

Don’t get me wrong. I’m not opposed to utilizing debt to get an education or buy a home. In fact, I’m 99.9% sure I will take out a mortgage. But don’t trick yourself in to thinking that your mortgage is good. It should still be seen as a money hungry beast that won’t go away until you MAKE IT go away. Were you like me and once thought  “good debt” existed? If I could go back in time, I probably would have gone to a public college, saved a ton of money, and graduated debt free. Oh to be young, naive, and easily influenced.

p.s. Anyone that thinks student loans are “good debt” is more than welcome to have mine 🙂