If you are searching on the internet for the best debt consolidation loans for bad credit or want to get information about the pros and cons of debt consolidation. What are instant debt consolidation loans. Is debt consolidation a good idea we will also teach you a few debt consolidation examples and also explain what consolidate credit card debt & credit card consolidation are and what is the difference? So for all this expansive information, you should read this post completely. So that you can get good and accurate information because half incomplete knowledge is very dangerous.
Debt Consolidation – best debt consolidation loans for bad credit
Should I Get A Consolidation Loan | Is debt consolidation a good idea?
best debt consolidation loans for bad credit, pros and cons of debt consolidation, instant debt consolidation loans, is debt consolidation a good idea, debt consolidation example, consolidate credit card debt & credit card consolidation
The ideal scenario for someone with debt is to get a low-rate consolidation loan
and pay it off in three or four years. But that’s easier said than done. True
consolidation loans are usually unsecured personal loans (we’ll talk about other
types of consolidation loans in a moment). The problem is that lenders know that
if you already have quite a bit of debt and then consolidate, you’re likely to end
up deeper in debt in a year or two.
Remember our five types of borrowers:
- Wishers
- Wasters
- Wanters
- Whiners
- Winners
Wishers, wasters, wanters, and whiners are all at risk when it comes to
consolidation loans. They will often:
- Get a consolidation loan based solely on the monthly payment. Once
they’ve consolidated, they figure they’ll be able to quickly pay it off but
have no specific plan for doing so.
- Soon run up new debt. After all, they still need a new car, clothing, the
latest cell phone, etc.
- Be at risk for high-rate consolidation loans because they are focused just on
today’s situation and not on a big picture plan for getting out of debt.
- Complain about their situation but never try to take steps to remedy it.
- For winners, though, a consolidation loan is just a way to lower costs in
order to get out of debt faster. They’ll take a consolidation loan if it makes
sense, but they won’t fall for gimmicks like high-rate loans.
Lenders know that there are a lot of wishers, wanters, wasters, and whiners out there. That’s how they make money. They also know that puts their loans at
risk, especially since they don’t have any collateral to go after if you don’t pay.
That makes a consolidation loan hard to get if you already have quite a bit of
credit card debt. You can shop for a consolidation loan, but what you’re more
like to find are offers to tap the equity in your home (where lenders at least can
foreclose if they really have to), offers for credit counseling and debt settlement
(which we’ll talk about in the next chapter).
Read More About: How To Beat The Lenders At Their own Game
best debt consolidation loans for bad credit, pros and cons of debt consolidation, instant debt consolidation loans, is debt consolidation a good idea, debt consolidation example, consolidate credit card debt & credit card consolidation
Peer to Peer (P2P) Loans
If your credit card company is charging you a high rate and won’t budge, you
may want to check out a peer-to-peer lending service (also called “social
lending” service). Although the premise is similar to that of a bank (take in
money and then lend out that money at a higher rate), these services aren’t
banks. Instead, they allow individuals to lend money to other individuals in the
hopes of earning higher returns on their investments. The two most popular
services in this space are Prosper.com and LendingClub.com.
You don’t have to have perfect credit to get a P2P loan, but you typically
must have a decent credit score. Their minimum credit score requirements are
posted on their websites. The interest rate you will pay will depend on the level
of risk the lenders think they are taking by lending you money. The better your
credit qualifications, the lower the rate you’ll pay.
In addition to potentially lower interest rates and (possibly) easier credit
standards, there’s another advantage to these loans over credit cards. These loans
must be paid back over a specific number of months, so you won’t be stretching
out the debt over many years. And they will be reported as installment loans, not
revolving loans, which may also be helpful for your credit scores.
Home Loans for Consolidation
best debt consolidation loans for bad credit, pros and cons of debt consolidation, instant debt consolidation loans, is debt consolidation a good idea, debt consolidation example, consolidate credit card debt & credit card consolidation
Home equity loans were one of the most popular ways to consolidate over the
last decade. Unfortunately, as real estate values dropped, many homeowners
found themselves upside down on their homes and owing more than their homes
were worth. If you didn’t take money out during the boom and you now find
yourself with equity in your home, consider yourself fortunate. Still, if your
personal finances have taken a hit during the recession you may be tempted to
tap your home equity to pay off other debt. There are two basic ways to do this:
- Get a home equity loan or line of credit• Refinance your current loan and get “cash-out” to pay off debt
There’s always a risk – and it’s a real one – that you could lose your home if
you can’t pay a home equity loan or the new mortgage. Recently, we’ve seen
foreclosures at an all-time high. With credit card debt, the worst that will happen
if you run into tough times is that the account will be charged off and sent to
collections. Eventually, you may be sued. But, unlike home equity or
mortgage loans, you can’t immediately lose your home just because you don’t
pay your credit card bill.
Home equity loans can be deceptive since it makes it appear that you are
turning bad debt into good debt. But when you trade credit card debt for home
equity debt, you’re giving up the opportunity to take that home equity and turn it
into good debt – perhaps by leveraging it to buy an investment property. Instead,
you’re just sucking out your equity to pay for expenses and high-interest rates
you may have incurred long ago. Unfortunately, many people consolidate using
their home and then they end up with new credit card debts a year or two later –
only now their home is maxed out. Unless things are truly on the upswing for
you financially, it’s probably wise to avoid putting your home at risk.
Read More About: How CREDIT System Works in Banking | Finance?
best debt consolidation loans for bad credit, pros and cons of debt consolidation, instant debt consolidation loans, is debt consolidation a good idea, debt consolidation example, consolidate credit card debt & credit card consolidation
Home Equity Loans
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These loans come in two flavors: The first is home equity loans which are for a
fixed amount with a fixed repayment period. The second is home equity lines
of credit which are more like a credit card, allowing you to borrow up to a
certain amount and pay it back with more flexibility.
Many home equity plans set a fixed period during which you can borrow
money. At the end of this “draw” period (which might be ten years, for
example), you will not be able to borrow anymore. You may have to pay the
balance due then, or you may have another period (ten years, for example)
during which you must repay the loan. Some plans may require you to take out a
minimum amount when you first get the loan or may impose a prepayment
penalty if you pay off the loan in the first or second year.
The great thing about home equity loans is that they usually carry low-interest rates, the interest you do pay is often tax-deductible if you itemize, and
the payments are relatively low. Many home equity lines, for example, allow you
to pay only interest each month.
They are also relatively easy to get if you have OK credit and enough equity
in your home. And, best of all, they usually carry low – or even no – closing
costs. You may have to pay for an appraisal, but often you don’t have to pay for much more than that.
pros and cons of debt consolidation
Warning! If you are currently paying on a home equity loan, you may be
making interest-only payments. Your monthly payments can rise dramatically
when you enter the full payback period. Be sure to check with your lender to
find out when that will happen and plan accordingly.
Refinancing
Another way to tap the equity in your home is to refinance. This is especially
attractive if your current mortgage has a high-interest rate or if you want to start
over again with a new, longer mortgage.
A “cash-out” refinance allows you to refinance your mortgage, pay off the
current loan, and take additional cash out to pay off debts. You may be able to
borrow up to 80% of the value of your home in a cash-out refinance, but that
depends on your credit score and whether you are self-employed. (Lower credit
scores and self-employment may mean you can’t borrow quite as much on a
cash-out transaction.)
Why would you want to get a longer mortgage? Simple: If your monthly
payments come down for your house, you will have more money each month to
pay down your other obligations. Don’t be one of the millions who refinanced
before the Great Recession only to use the money on doodads and non-
performing assets, and eventually lose their house when values fell. If you
refinance, keep paying down your other debt with any money you free up each
month by refinancing.
Refinancing isn’t usually free. Closing costs usually add up to about 4% of
the mortgage amount. Some lenders offer no-cost refinancing, but you’ll pay a
higher interest rate. Analyze the loan and the numbers involved to make sure it is
the right step for you.
Retirement Loans for Consolidation | consolidate credit card debt & credit card consolidation
Edgar had several credit cards totaling about $35,000 in balances. One issuer, in
particular, had raised his rate to 29.99% and wouldn’t budge. That really bugged
him, so Edgar decided he’d cash in his IRA and use the funds to pay off that
debt. However, that was an expensive choice. Since he had taken a tax deduction
when he’d contributed to his IRA, the money he took out was subject to taxes as
income, plus he had to pay a 10% penalty for early withdrawal. That made
Edgar’s strategy a costly one. Borrowing against your retirement plan may be a better option than taking an
early withdrawal. You may be able to borrow against your 401(k), 403(b), or
pension account, but not against your IRA.
Most plans allow you to borrow up to 50% of the value of your account and
pay it back over five years. Interest is charged, but it’s usually a fairly low rate
and you pay it to yourself, not to a lender. Another benefit is that you don’t have
to have good credit to borrow, since there is no credit check. Of course, there are
drawbacks. The big risk if you take one of these loans through your employer-
sponsored plan and then leave (or lose) your job, you may have to pay back the
loan immediately or pay the taxes and penalties as if it was an early withdrawal.
Ouch!
Here’s another big risk: The chance that it won’t solve your problem and
you’ll end up in bankruptcy anyway. Let’s say you’ve gotten yourself into a lot
of debt because of pay cuts at work or a business that went under. So you start
raiding your retirement funds. It takes you longer to get back on your feet than
you expected. You are unable to pay back the retirement loan, so you are forced
to treat the loan as a withdrawal and pay taxes and a 10% penalty. You still end
up in bankruptcy. Now your retirement funds, which likely would have been
protected in bankruptcy, are gone. You’re literally starting from scratch.
Friends and Family
Friends or family may be willing to help you out if you’re in a rough spot. But
please think twice before asking them to do that. Are you really sure that you can
pay back the loan? Really, really sure? If not, you’re just dragging them into
your financial problems.
Your parents, richer older brother, or any other friend or relative do not “owe”
you anything, even if they make gobs more money than you do. Allowing them
to bail you out may temporarily help the situation but unless your problems are
truly out of the ordinary for you, the relief won’t last. That’s because you need to
learn how to stop taking on bad debt and build wealth.
If you – or they – are determined to make one of these loans, then at least
make it professional. Get an official promissory note and set up an official
repayment schedule. And treat it as any other loan, not as a gift. Visit the
A resource section for more information.
Prepaying Your MortgageFor some people a mortgage is considered “good debt.” That’s because you’re
largely using the bank’s money to purchase an asset that likely will increase over
time. It’s called “leverage.”
While paying off your credit cards and other bad debt should be your first
priority, there are times when it can make sense to pay off your mortgage faster
then the 30-year or 15-year loan, you’ve taken out.
Advantages of Prepaying
- You’ll keep more money in your pocket. A typical home loan costs 2 – 3
times the original loan amount in interest. That money will be yours,
instead of your banker’s, if you prepay.
- You’ll own your home free and clear sooner. For many people, that gives
them a tremendous amount of comfort. (Be sure to protect all that equity
you have with a homestead exemption or other asset protection strategy.)
- Building up equity may give you more flexibility if you need to move, or
even borrow against your home for other investments or a business. A
highly leveraged house can quickly become a burden if times get tough.
Disadvantages of Prepaying
- When interest rates are low on home loans, you don’t get a huge bang for
your buck by prepaying. (Although you may still realize the equivalent of
a return greater than the paltry amount paid on savings accounts.)
- You may lose some of the tax advantages of deductible mortgage interest.
Keep in mind, though, that if your interest costs and other itemized
expenses don’t exceed the standard deduction, you’re not getting a
deduction anyway.
- Home equity is not very liquid. It’s easy to borrow against when your
financial situation is fine, but if you run into problems you may have
trouble qualifying for a loan. (That’s why it’s good to line up a home
equity loan before you really need it.)
Here’s the bottom line: Pay off your bad debt first. Then make sure you have
an adequate emergency savings fund, plus good insurance (health, life, auto, and
an umbrella policy). Then if you have extra money you’d like to use to prepay
your mortgage, go ahead. Don’t forget to keep focusing on wealth-building
rather than just debt reduction as your end goal. If prepaying your mortgage fits
into that plan by all means do it.How to Win at Debt Consolidation
Have you noticed one thing about the options we’ve described in this chapter?
They may all help you to lower your cost and/or your payments as you get out of
debt, but you still must find the income to pay them off.
There are several ways to do this:
- Cut expenses. Start tracking where you spend your money and look for
ways to cut back. It may not be fun but think of it as temporary. One of
the best ways to do this is to start paying attention to what you’re spending
and see if you can find ways to cut even a little. Every extra dollar you free
up can help you cut your debt faster. I’ve included a Budget Worksheet in
the Appendix to help you learn where your money is going.
- Bring in more income. One of the best ways to do this may be to have
your own business. This may save you money in taxes and bring in extra
cash, as well as other benefits.
FAQ
Does debt consolidation affect your credit score?
Conclusion
The conclusion of this post is that you should carefully examine and then take the loan of debt consolidation. so that this loan can benefit you later and not put pressure on you.
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