Different Types Of Debt Consolidation Programs
there is inflation and financial crisis, people around the world worry
to make both ends meet. Debt consolidation programs acts as a form of
solution to take care of their bills.
Debt consolidation programs are designed to have one plan wherein you can convert all your previous loans or any other debt with higher interests. The advantage of this plan is to lower the interest rates. This helps in managing the accounts and paying bills under one roof.
A thorough scrutiny is required while selecting the services offered by these companies. However promising they may be in helping your problems, the end result may cost you more than you owe. So, this can be a temporary solution only.
Chris Viale, General Manager of Cambridge Credit Corp., a non profit credit counseling agency based in Agawam, Mass opines that this is a temporary relief and not a complete cure.
There are several forms to approach these debt loans like debt consolidation loans, balance transfers to a zero-percent credit card and home equity loans or lines of credit.
According to Viale, 70 percent of Americans who opts for home loan or any other loans to pay off credit cards, actually incurs the same debt within a period of 2 years.
Viale’s statistics highlights the problem you face with debt consolidation. When you approach another creditor tio take care of the existing one, you are bound to add fuel to the fire as you are already in debt.
Advertisements for lower interest rates may not be applicable when your debt is higher. It may be beneficial to few people only.
You can try for debt consolidation in case you are more disciplined to work out the methods or if it is your last credits for settlement.
Home Equity loan, or lines of credit, is treated as a simple method to pay off your debt. By valuing the property of your house, loan is sanctioned and this may help you in paying off other bills and getting tax benefits.
The big risk in home loan barrowings is it can back fire, and you may lose your house in case of default on the payment of home loan.
Though equity loan interest can be treated as tax deduction, it is limited in some situations. According to Cambridge Viale, it does not make any fiscal sense though it gives tax concession.
Giarratano agrees. "Banks will tell you how much you can borrow," she says. "That doesn't mean you should borrow the total amount, but that's what people do." Giarratano approves this and informs that many people barrow the entire amount as loan when bank gives the information of the barrowing limit.
In spite of this, home equity line of credit or loan may help to ease the burden of debt for some house owners. However, calculating the interest with Bank rate calculator in advance can assist in determining the barrowing against home loans is worth considering or not.
In case, for those who do not own a house, zero-percent credit card helps to reduce the debt. A discipline approach and timely decision is required.
However, for availing these facility, you should thoroughly understand that how long you qualify for this single digit rate and when your period of loan will end and also the rate of interest fluctuatiions, if any.
When the payment is made within the stipulated time, the rate of interest may be low. Even when you make one payment late, the credit card company will hike its interest rate. So, this has to be noted along with any hidden fees and charges which may increase your credit cost.
Since this is a temporary relief, Viale suggests that the best way is to pay promptly till the interest is low and then move on to another credit card.
However, changing of credit card frequently will have a negative rating and one has to be cautious about it.
For reducing your debt load, you need to pay higher amounts than the smallest amount prescribed by the card company.
You will get mor2Qe idea if you refer to the Bankrate’s minimum payment calculator. For a debt of $20000 to be transferred from a positive interest rate card to a zero percent card and paid just $1000 when the rate jumped to say 14%. Against this, if you pay only the minimum prescribed as repayment, it will take you more than 1100months to finish your full debt. You may not live that long. In this case you pay a whopping 64800$ as interest alone, which is huge.
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