If money is tight, finding cheap loans may sound like an answer to your problems. It is easy to fall for the advertising of debt consolidation companies which promise to reduce or eliminate your credit card balances.
However, it’s wise to research any claims from services offering to reduce or eliminate your debt through consolidation. Most of the companies do not process a loan but instead promise to work with your creditors to reduce interest rates and payments to a level you can afford.
There are ways to consolidate your credit card debt with payments you can more easily afford. Before choosing the consolidation option, examine all of the options open to you.
Debt Consolidation Services
A company that specializes in consolidating credit card debt may is one option. Do not choose a service based on television or online advertising as this type of business is known for shady practices. Look carefully at the company’s qualifications.
Choose a company that is registered as a non-profit organization with employees who are certified debt counselors. The debt consolidation service can negotiate with your creditors to reduce interest rates and payments.
In most cases, you will make one payment each month to the consolidation service and they will, in turn, make the payments to your creditors.
Top Consolidation Loans?
If you have three or four credit cards with high interest rates, it may be the monthly payments that are a problem rather than the total amount of debt owed.
Accounts in good standing where payments have been responsibly made each month will increase your credit rating. If the payments are too high one late or missed payment will damaged your credit rating.
If you have good credit, you may be able to avoid loans altogether. Many lenders offer introductory interest rates of 0% for a year on new credit card accounts.
If you are approved for one of these special rate credit cards you can transfer your high interest balances to the new account. For up to one year, every cent you pay each month will go directly to reducing the balance of your credit card debt.
This is an option that can save hundreds of dollars of interest fees while costing nothing in the way of loan fees. You will need good credit to qualify.
You can compare the various offers to find a 0% interest account with low transfer fees and with an interest rate that will be reasonable after the introductory rate expires. Remember to read the fine print to look for any hidden fees.
If you choose to open a new credit account and transfer high interest balances, be careful to make your monthly payments in a timely way. One late or missed payment can result in cancellation of the 0% introductory rate and eliminate the benefits of transferring your debt balances.
Bank Loans
Consumers who have excellent credit and a good income may qualify for personal loans at their local bank. If you are having problems paying your credit card bills each month, its doubt you will be able to obtain an unsecured bank loan.
Credit card debt is unsecured debt. If you fail to pay, the lender cannot take your home or your car or furniture as debt repayment. When you obtain a loan from your bank, you are exchanging unsecured debt for secured debt. This is not a great option but there are times when it is a smart financial decision.
If you have a vehicle that is paid for, you may be able to obtain a bank loan on your car. The interest rate will be significantly less than the interest rates charged on credit cards today.
If you fail to make the payments, you might lose your automobile but as long as you pay off the car loan as agreed, you can use the loan to pay off high APR credit cards and eliminate the debt in a specific number of months.
Banks also offer debt consolidation loans that are designed specifically to help consumers burdened with credit card debt. These loans are often listed as home equity loans and are the same as a second mortgage placed on your property.
The interest rate on such a loan will be less than half the rate charged by credit card banks but your home will be at risk should you fail to repay the loan.
The home equity loan was once the most often recommended method of paying off burdensome credit card debt. Falling home prices and a floundering real estate market have made this a high risk option today.
Summary
It is possible to find cheap loans for your debt consolidation but it’s necessary to carefully examine all options available to you. Do research on any consolidation service you are considering.
Check your credit report to see if your credit rating might qualify you for a 0% APR account to transfer your high interest debt.
Talk to your loan bank officer to find out the options for bank debt consolidation loans and discuss the pros and cons of taking that route to pay off credit card debt. However, you must try to stay away from high risk personal loans as they will get you into more trouble!
