Today, more Americans are finding themselves in debt than ever before. Debt is a trap that’s very easy to fall into but difficult to climb out off. Most start out with the intention of building their credit but inadvertently allow the credit cards to get out of control and their spending habits increase with the thought of buying now and paying later.
There are a number of ways to shed your debt. However you should beware of predatory lenders who offer certain types of loans for consolidating your debts. Here are a few things to look for:
- Look for low interest rates. Interest rates and fees that are significantly lower than your current rate can lower your repayments and the time it takes to repay the loan.
- Try to avoid banks which charge high fees for early repayments. Check the small print on any hidden fees and avoid loans with penalties for early payoff.
- Try to avoid using your family home as loan security as the risks of the house being seized will add to your financial stresses.
- Don’t push yourself further into debt with a debt consolidation loan, only get a loan to cover the amount you owe on loans and credit cards.
- Be careful of lenders that try to make you swith loans. Don’t be fooled by marketing spin on loans that makes them sound better than they are – do your homework and calculate any savings.
- Beware of companies who exploit your financial trouble. Sometimes loan sharks offer consolidation loans at higher interest rates and additional fees and costs when using your home as collateral. Soon after defaulting on this loan, your home is seized and sold.
- Be aware of your own spending habits. Consolidating debts does not pay off your debts and you still need discipline to pay the debt off fast.
There are a number of ways to consolidate your debts:
- Home equity loan – use equity in your home to help pay off your other debts.
- Credit card balance transfers – place all your credit card debts into one low or no interest credit card. If you don’t pay off the full debt within the offer period you could be hit with much higher interest charges so only use this method if you are confident you can pay the debt off in time.
- Debt consolidation loans – Personal lenders are joining the debt consolidation business. By researching the available loans, you can reduce your monthly payments and put money back into your pocket each month.
If you do take out a debt consolidation loan, remember to continue paying as much as possible off the balance. Only paying the minimum payment each month could leave you still paying off your debt in 2037. Ensure your incomings are now greater than your outgoings by creating a household budget you stick to. Creating a budget helps you take charge of your debts and have the spare money to pay them off faster. Paying debts off at the minimum payment rate can be very slow, may additional repayments when possible.
Article for information only, not financial advice – Written by R. Greenwood of Compare Your Bank.