Debt consolidation can be a good way for you to dig from your obligations. To find out for sure, you need to understand the process and how it can work for you.
First, the debt consolidation combines several debt from credit cards, high flowering loans, and other debt into a single monthly payment. The process must provide a lower interest rate than the aggregate level you pay for the existing debt. This can help you save money and pay debts faster.
Important credit score
A strong credit score will allow you to qualify for lower interest rates that make debt consolidation reasonable. If your credit is less excited and the only loan that meets your requirements is highly interested, then you will not save enough cash to make a useful strategy.
Laid the ground
Before you apply for credit consolidation loans, it is also smart to develop a plan to pay off your obligations and change your spending habits to ensure you can make monthly payments. If you have too much debt, the monthly payment you have to make may not be affordable. Collect a household budget that shows how much you produce monthly and what you spend. After you count how much you can, you can determine whether the plan will work for you.
Type of debt consolidation
One of them is the transfer of balances, which switch high flower debt from credit cards, loans, retail cards, and other collateral debt to credit cards with a low annual percentage level of promotion (Apr). Making monthly payments on low-level debt can help remove faster balance.
For example, if you have a credit card with a $ 3,000 balance and April 18 percent you will be charged an interest rate of $ 300 if you cleanse the debt with 12 monthly payments of $ 275.
Let’s say you transfer the balance to the card that shows an introduction to the introduction to zero percent to transfer the balance. The card company is likely to charge around three percent of the balance. If you make a monthly payment of the same $ 275 on your new initial balance $ 3.090 for 11 months with one last $ 65 payment in the last month, you will save $ 210 in interest costs.
Personal loan
Another form of debt consolidation is a debt consolidation loan, where your current obligation will be folded into a personal loan with a fixed monthly payment. This strategy only makes sense if your loan interest rate is less than the average level on the existing balance.
Home loans
But other forms of consolidation are home loans. If you have a house, you can use equity – the difference between what you owe for mortgages and current home values - in the structure to consolidate your debt. You will repay the loan with monthly expenses, usually at a fixed level. Meanwhile, you can use a home loan to pay off your other debt and more expensive.
Risk, of course, is that if you are left in your loan payment, you risk losing your home.
401 (k) loan
If your employer allows you to borrow your 401 (k) plan, you can pay off the debt too. The disadvantage is that if you fail to pay back your loan on time, you have to pay taxes on it. It was in addition to the initial 10 percent withdrawal penalty if the withdrawal was carried out before the age of 59-and-half.
You also have to remember that 401 (k) you should be for your retirement. When you withdraw money from the funds, it reduces the amount of cash you have for that season in your life. You must decide whether to remove your high interest debt commensurate with a reduction.
