Taking out a debt consolidation loan can be a responsible decision when you realize that your debts are getting out of hand. However, you will want to also consider other options before you do so. Here are 8 possibilities to consider before taking a consolidation loan.
1) Use what you have to pay your debt. A debt consolidation loan is still another loan that you have to pay. However, a little creative thinking about assets that you already own and can sell goes a long way in creating extra money to pay off the debt. If you have unwanted books, movies, TV’s, tools, or even cars, all these can be sold through Craigslist, Ebay, or the local newspaper. By selling these things you can pay your own debt down faster. Also, if you are a homeowner with a spare bedroom that you can rent, that monthly income could get you out of debt faster then you though.
2) Pay as much as you can towards your credit cards. If you are able to make your minimum credit card payments you should consider how much additional money you can pay off each month. Reduce excess spending wherever possible and pay as much as you can on your credit cards. If you don’t settle for making just the minimum payment, you can make a significant impact in your debt over the course of 12 to 24 months. If your debt situation makes it difficult to meet the minimum payment, a consolidation loan may be easier for you to manage.
3) Homeowners should consider a new mortgage. If you currently own a home, it may be able to provide you with funds that can be used to pay off other debt. By taking out a new mortgage on your home by refinancing, you will likely be able to reduce your current interest rate and free up additional money every month. A second mortgage may have a similar or a slightly higher interest rate, but is a good choice if refinancing your current mortgage will result in penalty charges by your lender.
4) Take out a secured loan with another lender. If you have already missed or been late with any payments, and as a result your credit score is too low for your mortgagor, consider a secured loan with another lender. Secured loans in these circumstances are more expensive and the lenders are quick to repossess your home if you miss payments. Only take this route if you are certain that you can make the repayments.
5) Assets other than a home can also be used to secure a loan. If you don’t own a home or any other real estate, but you do have a fancy car or nice boat, it is possible to use these pieces of personal property as security for a loan. It is important to consider the interest rate on the loan though. A loan secured by assets other than real estate typically has a higher interest rate.
6) An unsecured loan. If you do not have property or other assets an unsecured loan is often a possibility. An unsecured loan is usually over a shorter term, normally up to a maximum of 7 years but occasionally longer. As a result the monthly payments will be higher but the debt will reduce quickly. Because there is no security expect to pay a higher interest rate, particularly if you have a poor credit history.
Low interest credit cards. When your debt is not too high and your credit score is pretty good, you will probably be able to apply for a credit card with a low interest rate or even a 0% rate on balance transfers. A credit card may actually be able to offer a better rate and you would find on any loan. However, be prepared to pay off the balance of during the transfer period or you could end up with an even higher rate.
Do your own research of the options. There are many possible courses of action that you could take to get out of debt. Some are better than others, some may be obvious and others can be confusing. Thoroughly research the choices for your own situation before making a final decision. Talking to different lenders and banks may be able to help give you more information so that you can compare your choices. Asking a bank for advice won’t commit you to anything, but it might help you get out of debt.
It will take some time, a bit of determination and considerable effort to get out of debt, but the debt free life will be worth it. Simply not worrying anymore about unpaid bills phone calls from collectors will make life much more enjoyable. There are many solutions to the problem of debt and debt consolidation it one of them. Just keep in mind, that where there is a will there is a way and you’ll find your solution.
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