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Debt Consolidation Can Bring Your Debt Under Control
Debt Consolidation may not reduce the amount of debt you have today, but coupled with careful budgeting and spending, Consolidating your debt can bring your monthly payments under control so you can follow the budget you set up! Reducing your debt and success of the outcome of debt consolidation will depend on securing terms beneficial to you and how well you stick to your budget. Our loan counselors will not offer a loan unless there is a clear benefit to you, the consumer, but it is up to you to avoid using the credit cards that you pay off through the consolidation loan.
Shari had a house payment of $1756.00, taxes of $350 per month and Insurance of $150 per month. She just got back from a vacation on the shore, but was amazed at how high her visa ran from nightly dinners and souvenirs and that cute dinner dress that was on sale. With several other credit cards near the limit, she can’t transfer balances. Shari has a car loan with monthly payment of $395 per month. The monthly payments on the credit cards add up to another $900 a month. Shari has looked into finance and she has two options:
Consolidate Your Debt
- Shari can take out a consumer loan to pay off the credit cards and car loan. Because the loan is not collateralized, the interest rate is higher and will take longer to repay than continuing to make separate payments on each of the debts. If Shari takes out a ten year debt consolidation loan, she will save $200 a month but have to pay on that note for a longer period than her debts previously required. If the $200 a month savings improves Shari’s ability to budget and to get her spending under control, it may be the right choice for her.
- Shari could refinance her home and use her home equity in a debt consolidation refinance home loan to pay off all her outstanding debts. Doing this, Shari would save $425 per month, but the debts are now protected by a mortgage lien against her home. If Shari feels she must file bankruptcy later, the debts would be treated differently because of the home is now collateral. That is why experts sometimes recommend against this step. On the other hand, if Shari is committed to following her new budget, and is able to put the monthly difference into savings for emergencies, she may actually be able to eventually start paying extra money on her mortgage and reducing the debt more quickly than the terms require. By making one extra mortgage payment a year, Shari could knock up to seven (7) years off of her thirty (30) year fixed rate mortgage loan. If paying that extra payment means that Shari has to go back to using her credit cards, then Shari is only extending her debt.
Talk to a Debt Professional
Debt consolidation means paying off the full or negotiated amount of the debts. It can protect your credit rating, by avoiding late payments, settled debt amounts, or bankruptcy. It does not reduce the amount owed, but does change the payment terms to more predictable interest rate and payment amount each month, and can give much needed stability to enable you to better plan your finances, now and in the future.
Talk to one of our counselors today to learn how to choose the best option for you and your financial situation. Our experience can help save you money and distress. Get your finances under control, so you can get your life back!
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