How to Best Use Your Debt Consolidation Opportunities
Some families are overwhelmed with debt. According to MSN Money, about 43 percent of American families spend more money than they earn annually. The average American household carries $8,000 in credit card debt. Debt consolidation companies negotiate with lenders to consolidate debt, lower monthly payments and create a plan for payoff. However, before choosing a company it helps to have a few tips and determine if a "do-it-yourself" approach works better.
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Instructions
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Find the best interest rate. Some debt programs offer consolidation loans that come with high interest rates, some as high as 22 percent. Check with your state attorney's office; it can tell you what loan programs have been problematic and what ones have decent reputations. Make sure the interest rate is lower than the existing rates before agreeing to a consolidation loan.
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Ask about monthly fees. Debt consolidation companies often charge a fee on top of your monthly payment, usually 10 percent of the payment each month. For example, if your monthly payment is $200 you would pay an extra $20 each month for a total of $220.
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Consider negotiating with lenders yourself. Try negotiating with your existing lenders to lower your monthly interest payment and stretch out loan terms. Pay off the highest interest debt first and then move onto the next highest interest debt.
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Check out other loan options. Consider applying for a home equity loan if you own a home. Rates are usually lower than the credit cards you need to consolidate, which drives down monthly payments. If you don't own a home, check out secured personal loans. These loans are secured by collateral and usually have lower interest rates the existing credit cards.
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Tips & Warnings
Check with the Better Business Bureau if you decide to use a debt consolidation company. Some companies have a track record of making late payments to creditors, which can lower your credit score.
Debt consolidation can help you pay off existing debt. However, consumers must make long-term behaviorial and spending changes to ensure you pay off debt for good.
References
- Photo Credit Debt concept - cutting a credit card image by Sophia Winters from Fotolia.com
