Know Your Debt Consolidation Options
Many women today find their self in a position
of having to consider a debt consolidation loan or a debt consolidation
company to help them out of their financial crisis. The crisis can come
from loss of job, divorce, seperation, or just plain mismanagement of their
money. Taking on too much credit is easy when you don't actually SEE the
dollars being spent by credit cards, auto loans, home loans and more.
Property taxes can be a big shock at the
end of the year and taking on more debt to pay these kinds of surprises
can get out of hand quickly.
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Nobody likes being in debt or the additional
stress it adds to their life. Additionally, most individuals have some
form of debt that is weighing heavily on them and they simply want to get
rid of it. If you are in this situation then you might consider debt consolidation.
When it comes to debt consolidation there are basically two options you
have. You can either borrow money and pay off all your bills and then just
pay the one loan payment each month or else you may choose to use a debt
consolidation or credit counseling services. The option that is best for
you is most likely the option you qualify for. The following pros and cons
of each debt consolidation option will help you see which option is best
for you as well as inform you regarding each option.
Borrowing to Pay off Bills
The first option you have to pay off all
of your debts is to apply for a debt consolidation loan or a home mortgage
loan. However, this particular option requires you have good credit and
equity in your home if you are applying for a mortgage loan. As a result,
many people do not qualify for this particular option. Although, there
are pros and cons for this option for those individuals who do qualify.
The pros of borrowing to pay off your bills
include paying off all of your bills at once and dramatically decreasing
your monthly payments. You will have to make a monthly payment on the debt
consolidation loan you received, but this will be significantly lower than
the total of all the other monthly payments you were paying. As a result,
a debt consolidation loan will grant you some serious relief in your monthly
expenditures. Another benefit of paying off all your debts at once is that
if you were at risk for collection of your debt you will not need to worry
any longer. Once your debt is paid off any debt collection activities will
be stopped in their tracks and this will grant a significant amount of
relief as well. Another major benefit that is important to everyone is
that when you borrow to pay off your loans your credit will not have any
negative marks and you will likely experience an increase in your credit
rating simply because you decreased your debt ratio.
These benefits may have you excited; however
borrowing to pay off your debts also has its drawbacks. For instance, if
you receive a home mortgage loan to pay off your debts and you cannot make
the monthly loan payment then you risk losing your home. This is a significant
drawback and if you do not believe you will be able to make the monthly
payment on the mortgage loan you should avoid this option. Another negative
is that you are not eliminating your debt; you are simply changing the
way you pay for it. As a result, the stress of the overall amount you owe
still exists and you can easily overextend yourself again because you have
a false sense of security that you have your debts under control.
If you qualify for a home mortgage or debt
consolidation loan then you should work with a loan counselor to help you
meet your monthly obligation and avoid any other negative impacts of your
debt. However, if you do not qualify for a loan you may very well qualify
for help from a debt consolidation service or credit counseling service.
Debt Consolidation and Credit Counseling
Services
This option helps you in a variety of ways,
yet is significantly different than receiving a debt consolidation loan.
Many individuals have found success by using these services while others
do not recommend them at all. You must review the following benefits and
drawbacks and compare them to your personal financial and debt situation
before you can make the right choice for you.
The benefits of the debt consolidation
and credit counseling services include an immediate decrease in your monthly
payments. This provides significant relief immediately for individuals
suffering from too much debt. Also, any debt collection actions in progress
will likely be reduced because the debt consolidation agency informs your
debtors that you are actively trying to pay your bills. Frequently, these
services can also help eliminate late payment fees as well as decrease
interest rates. A required element in using these services is learning
money management skills that will help you avoid getting in debt and over
your head. With your money management skills you will understand how much
money you have and not try and live beyond your means. However, there are
cons that exist with this option of debt consolidation as well.
When you use these debt consolidation services
you will not be allowed to use any credit you have, so basically your credit
is on hold. Also, there are debt minimums you must meet before you qualify
for these types of services. If you have a very low amount of debt then
you will likely not qualify. Additionally, debt consolidation services
only provide services for an individuals unsecured debt and not all individuals
unsecured debt will qualify. And finally, when you use these services it
might negatively impact your credit score. However, it will not impact
your credit any worse than not using the services and continuing to make
late payments and getting behind.
As you can see there are two viable options
for debt consolidation and both are widely different with their own sets
of pros and cons. Once you have evaluated the options for consolidating
your debt you need to compare them to your personal financial situation
in order to make the best decision for paying off and managing your debt.
If you are over your head in debt then one of these options will certainly
help you, it is just up to you to figure out which one provides you the
most benefits and the least drawbacks.
Nathan Dawson writes for http://marriedfinances.com
a great online source for finance information
Debt Consolidation Resources
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