Tiffany Dow asked: Recent economical developments have forced us all to look closely at our personal finances, possibly to find that we’re in a bit of debt trouble. The phrases, “You can have debt relief in just minutes!” “Cut your interest rates in half!” and “Drastically reduce your minimum monthly payments!” are very seductive, especially now.
With financial uncertainty swirling around us, and debt ratios being very high for some of us, the temptation to apply for a debt loan, or debt consolidation loan, is great. Some advertisers for debt loans lead us to think that somehow, magically, our debt will vanish in front of our eyes if we take advantage of their offers for help – all at a very low price.
But before you go running to find someone to give you a debt loan and make it all go away, you must take time to learn the dos and don’ts. Let’s first look at the don’ts to debt loans:
Don’t assume that getting a debt loan is easy or cheap. If you are considering getting a loan to consolidate all your debts and make things easier on you, it’s probably because you’re having some money issues and your credit has taken a few hits.
If you are aren’t a good risk for a loan, your debt loan is going to come at a price, even if your overall monthly payment is lower. You’ll probably be paying a really high interest rate (21% – 22%), and will be paying off the loan over a long period of time. With the recent economical upheaval we’ve experienced, your interest rate may be even higher.
Don’t assume that consolidators who promise to fix everything by getting you lower interest rates and cutting your payments are being completely truthful. Many of them add a fee to your payment, while also getting a kickback of sorts from your creditors.
They’re making money, and your debt is not getting paid down as quickly as you’d hoped. Some really rotten consolidators have been known to miss the payments they are supposed to be making on your behalf – making things that much worse for you.
Now for the dos:
If your credit is decent and you have a home with a fair amount of equity in it, do feel free to apply for a home equity loan. These usually come with relatively low interest rates, and that interest is tax-deductible.
Do apply for a personal loan. If your credit is reasonably good, you may qualify for a personal loan at a lower interest rate that what you are paying on your combined debts.
Do call your credit card company(s) and ask them to give you better terms. You can often negotiate a better interest rate yourself.
Do get help from a reputable organization for your debt loan. A good consolidator will not only help you get your debts paid off, they will provide debt management advice and counseling.
One thing that our “new economy” is going to force all of us to do is to take a saner approach to our debt, and to be more aware of organizations that will hurt more than help us. While we are still reeling from the upheaval that’s taken place, and wondering just how we’re going to get out from under our own debts, we can do our level best to make wise choices about debt loans and debt consolidation.
Corey
