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Three Ways to Consolidate Your Debts

by Yucatan Times
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In our times of growing prices on education and property, incurring debts has long become the harsh reality of life. Few people now manage to avoid taking loans from banks, and as their human needs become more excessive, and as they make larger purchases, their debts accumulate as well. Often, before they know it, people become swamped with the multiple debts and draconian interests they pay on them. Contrary to their expectations, their lives do not become more luxurious with borrowed money but turn into incessant worrying over payments for their bank and credit card loans. Instead of guaranteeing easiness and prosperity, debts often lead people to bankruptcy. And yet, even with the amassment of debts, not everything is doom and gloom. What we should always remember is that debts can be consolidated and paid off easier than we even imagine. If you are one of many people who feel overwhelmed with their bad financial situation, take heart that there are proven methods that will help you lower your monthly payments. Some of them are presented below. To manage your mounting debt, you can either consider choosing specific cards for transferring balance or consolidate your different small debts into one and, in so doing, pay your loans off with lesser interest and in a shorter period of time than was initially arranged.

Instead of paying numerous loans with various stipulated amounts of interests and thus turning your life into a financial nightmare, it is often more practical to consolidate your debts. In other words, it is advisable to take out a new loan with which you will be able to pay off a number of your unsecured debts. When you consolidate your debts, you combine whatever loans you have into a single, often larger, piece of debt, usually with lower interest rate and lower monthly payment. What is particularly appealing in the debt consolidation is that it applicable to all types of debt. Whether you have a student loan debt, a car loan debt, or credit card debt, all of these debts can be unproblematically consolidated. Knowing that debt consolidation makes people’s lives easier and thus increases the likelihood that they will pay off their loans, creditors – banks and credit unions – usually gladly help them bring all their debts together.

What you need to know when considering debt consolidation is that there are two types of loans that can allow you to combine your debts together. There is ether secured or unsecured loan. Like secured credit cards, secured loans are those loans that are backed by your property, either your vehicle or house, that functions as collateral for your loan. Other assets such as furniture or gold can secure your loan, too. Creditors prefer secured loans, because whether you pay off your loan or give away your house in its stead, they will be in a win-win situation. This is the reason why they are more reluctant to allow unsecured debt consolidation loans, which are not backed by physical assets. Unsecured loans also have higher interest rates than secured ones, though their rates are still lower than the rates on credit cards.   

But whether you choose secured or unsecured loan to consolidate your debts, you need to know where to go to ask for it. There are various options to which you can resort to pay off your debts, each of which has its positive and negative sides. Getting a debt consolidation loan is the most direct method, of course. Your bank or non-profit debt consolidation companies can give money to you, if you qualify. Before you take their loan, however, it is crucial to check what interest rates it has and whether it includes extra fees. Some loans have such high interest rates and fees that their cost skyrockets.   You should also bear in mind that your bank might not necessarily give you a new loan in exchange for your old ones. In most cases, all your monthly debt payments will be combined and repaid either immediately or over a certain period of time. Understanding well the terms of your agreement with the bank is important for your subsequent successful redeeming of your debt consolidation loan.  

Another option to pay your debts off is to borrow money from your insurance. To be sure, this is not a highly desirable way to consolidate your debt. But if your only alternative to it is to file for bankruptcy, then borrowing your life insurance policy is still preferable. Your insurance company should allow you to borrow up to the cash value of your loan and use it to consolidate your debt. It will not ask you to make payments, provided your loan is less than the cash value of the policy. Yet it is still advisable to repay your loan, since, if you fail to do so, your insurance company will use the death benefit to pay for what you borrowed. Your beneficiaries might not receive money that you plan to bequeath them.  

If you have a 401 (K) retirement plan at work, you can borrow some part of it to pay for your debts. Before you decide to take some amount of money from your retirement plan, check your company’s policy and rules. Different companies allow to borrow different percentage of your investments. Note also that your employer will also ask you to repay the money you borrowed through a payroll deduction, usually within several years. Like banks, your company may ask you pay some interest on your loan. This interest may be as high as 5 percent. Hence, it is advisable to check the interest rates other non-profit debt consolidation companies offer before you touch your 401 (K) retirement plan. Unlike the debt consolidation loan, for which it is difficult to qualify, since your credit history should be good, your retirement plan lets you borrow money unproblematically. Nobody is going to check your credit history, because in this case, you use your own money that you have saved for your retirement. Yet borrowing money from your pension may entail serious difficulties for you in the future. If you fail to repay your loan, you will not have enough funds left for your comfortable retirement. Nor will you earn more profit from your retirement plan, when you take money out of it. Worse, you may be even penalized for defaulting on your 401 (K) plan. Therefore, prior to making a decision to pay off your existing loans with the help of your pension savings, see if there are better options available to combine your various loans together.  

Paying off your debts is doable. There are various ways, ranging from credit card balance transfers to borrowing money from friends and family, that can prevent you from sliding into a money pit. Your task is to study all pros and cons of these methods and choose the most profitable of them to wipe out your debts. 


The Yucatan Times

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