Before You Borrow, Make Sure to Compare Various Debt Loans
You may compare various debt loans if your high APR credit accounts are requiring high monthly payments that are stretching your budget. Limiting the use of credit cards has become the new fashion in this economy.
Why pay more in fees than you need to? What is the point of buying something on sale if the finances charges cancel out the savings? These are questions consumers are asking themselves today.
We often think those who are looking for debt loans are unable to pay their bills but that is no longer true. Today, financially stable individuals are opting to apply for debt loans as they move away from using credit cards for everyday purchases.
There was a time when the only way you could pay for a purchase was with cash, a personal check or a credit card. Today, consumers are often choosing to use prepaid debit cards and bank debit cards for purchases.
This eliminates the need to write checks or to carry large amounts of cash. The debit cards provide the same convenience that led to our reliance on credit cards – without the fees associated with credit card debt.
If you have made the choice to stop daily use of your credit cards, you may want to compare various debt loans. This type of loan will eliminate the high fees on current balances on your credit card accounts and replace the multiple monthly payments with one lower payment over a much shorter period of time.
Comparing Rates and Fees
A primary concern is the cost of the loan. Are there any costs to initiate the loan? What is the interest rate and how does it compare to the rates charged by your credit lending banks?
The interest rate will be reflection of your creditworthiness as well as prevalent market rates but will almost always be less than the APR associated with credit cards.
In addition, a loan (a high risk loan is different) does not carry the annual fees or other high fees that may associated with use of a credit account. Check the fine print for any additional fees or maintenance charges.
Determining Loan Amount
Your goal is to have zero balances on your credit cards. You may want to cancel those cards or just put them in a drawer to use only for real emergency situations.
There is a tendency to borrow more than you need. If your goal is only to pay off your current debt, you should arrive at a loan amount sufficient to make those payoffs.
You might add an extra couple hundred dollars to cover any unexpected interest charged on the account payoffs but should resist the temptation to add a few thousand to the loan as a “cushion”.
Keep in mind the goal of transferring high interest debt to a lower interest single loan is to pay off that debt in full as quickly as possible. This is not the time to increase your debt or to borrow extra money for a shopping spree or vacation.
Secured vs. Unsecured Loan
Unless you are able to obtain a loan on your signature, when you compare loans you are considering trading the unsecured credit card debt for debt that is secured by something you currently own.
If you default on credit debt you face legal and financial problems but you are not at risk of losing those items you purchased with your credit card.
If you use a home equity line of credit to pay off credit card debt, you are using your home as collateral for that loan. You have now traded unsecured debt for secured debt.
In some instances, this tradeoff may be a logical move. This is true if you compare various loans as a way to solve a one time problem with credit debt.
If you plan to keep using your credit cards after you have paid off the balances, you may be placing your home at risk. Failure to pay the home equity line of credit as agreed can lead to foreclosure and loss of your personal residence.
If a secured loan is the only option open to you, consider other property you have that might serve as collateral to avoid leveraging the equity in your home. A car loan might be an option or a loan on your personal possessions and furnishings is a possibility.
When you compare different debt loans you have many options if you have good credit. Be honest about your purpose in paying off your credit cards and how those cards will be used going forward.
With a careful comparison of your options you can obtain the best loan for your needs and remove the high interest credit card debt completely. If you replace using credit cards with paying for purchases in cash or with a debit card you will find your budget easier to manage each month.