If you are knee deep in credit card debt you may consider consolidation loans. When debt has become so burdensome that you may have to file for bankruptcy it’s worth your effort to look at alternatives before taking that final step to discharge debt.
Bankruptcy is a solution provided for those people who do not have the ability to pay off their debt but the lasting damage bankruptcy does to your credit rating should be avoided if at all possible.
It takes a massive effort to overcome the ten years of damage a personal bankruptcy inflicts on your credit report and debt consolidation loans are a much better option.
There are many scams in this financial arena! Desperate consumers often don’t stop to look at the fine print or to question the credentials of a debt management company. The result can be debt made worse by bad companies who prey on consumers burdened by debt.
First Line of Attack
Before looking for a debt consolidation loan, there are several things you can do to potentially reduce either your debt or your monthly payments. Contact your lenders before doing anything else.
Explain your special circumstances and the financial problem that is making it difficult for you to meet your payments. Ask if the interest rate on your credit card can be lowered. Most lenders today will refuse but if one lender agrees you have saved money already.
If you are on the brink of bankruptcy there is a different approach to use with your lenders. If you have lost your job or had a major financial setback and know you will not be able to pay off your debt at the current terms, lenders may be willing to work with you on a solution.
A negotiated settlement with lenders will allow you to pay an amount less than your total debt in exchange for the debt being considered “paid in full”. For the lender, partial repayment may be preferable to having the entire debt dismissed in a bankruptcy.
You have nothing to lose by being honest with your lenders and if you are able to reach settlements and make those payouts, you can avoid filing personal bankruptcy.
Put Your Finances in Order
p>List your debts, monthly payments and your income so you can clearly see if there areas where you can cut back on expenses to help pay off debt. Take the mystery out of debt consolidation loans by knowing what you need before you make application.
We become accustomed to our 300 channels of cable or satellite TV yet we can only watch one program at a time. If you are paying $120 per month for cable why not change to the lowest price cable package at $40-50. The change does not have to be permanent but can be a temporary source of money to pay down debt.
If every member of the family has a cell phone with unlimited minutes, consider changing to a plan with a reasonable number of calling minutes allocated each month and limit the chat time. An unlimited calling plan may cost $80 or more per month while 300 minutes monthly may be $20.
Consider future income in a realistic way. This is not the time for rosy scenarios and big dreams but for an assessment of what you can expect in the next months or year from your current employer or business.
Options for Debt Consolidation Loans
It is not necessary to confine your search to loans designed and advertised as debt consolidation loans. If you have a good relationship with your local bank branch, that’s a good place to begin your search.
A personal signature loan would provide you with lower interest rates and a set term limit to pay off the loan. In the past, this has been a good option to pay off high interest credit cards but does require good credit. This is an unsecured loan and thus is not available if you have bad credit.
What Not to Do
A seldom mentioned factor involving debt consolidation loans is the primary rule to keep in mind. Never replace unsecured debt with secured debt unless there is no other option available to you. This is a point many consumers ignored in the past.
They took home equity lines of credit to pay off credit cards and ended up losing their homes in foreclosure. Credit card debt is not secured by any physical collateral.
Replacing it with a loan that is based on your home or car or any other physical possessions may lower your monthly payments yet place you in greater financial jeopardy.