Taking out a debt consolidation loan can be a responsible choice when you realize that your debts are getting out of hand. But, you will want to also consider other options before you do so. Here are 8 possibilities to consider before taking a consolidation loan.
1) Use what you have to pay your debt. A debt consolidation loan is still another loan that you have to pay. But, a small creative thinking about assets that you already own and can sell goes a long way in making extra money to pay off the debt. If you have unwanted books, movies, TV’s, tools, or even cars, all these can be sold through Craigslist, Ebay, or the local newspaper. By selling these things you can pay your own debt down quicker. Also, if you are a homeowner with a spare bedroom that you can rent, that monthly income could get you out of debt quicker then you though.
2) Pay as much as you can towards your credit cards. If you are able to make your minimum credit card payments you should consider how much additional money you can pay off each month. Reduce excess spending wherever possible and pay as much as you can on your credit cards. If you don’t settle for making just the minimum payment, you can make a significant impact in your debt over the course of 12 to 24 months. If your debt situation makes it hard to meet the minimum payment, a consolidation loan may be simpler for you to manage.
3) If you are a homeowner, you may be able to save on your mortgage. Interest rates are historically low and by refinancing your current mortgage you may be able to save hundreds of dollars ever month. Additionally, you may be able to obtain additional money that can be used to repay other debts. But, be aware that there may be a prepayment penalty imposed by your current lender when doing this. If so, a second mortgage may still offer a reasonable interest rate while achieving a similar affect.
4) Consider a secured loan from a different lender. Missing and late payments can have a very negative affect on your credit score. This can potentially make your mortgage company hesitant to give you a second mortgage. But, by getting a new lender and using your house to secure the loan, you will likely be able to receive a loan at a decent rate. But, only use your home to secure a loan if you are positive that you can make the payments. If you miss payments, the lender will quickly try to repossess your home.
5) Use other assets to get a secured loan. Although the interest rate on a loan secured by an asset other than real estate is typically higher, it may still be worth it. If you have a car, boat or other expensive asset, you can uses these as security for a loan. This is a possible option if you don’t own any real estate or if your home is fully mortgaged already.
6) Consider loan that is unsecured. Although a secured loan will typically have a lower interest rate and can be repaid over a longer period of time, you may not have anything to use as security for a loan. Additionally, you may not want to risk having your property repossessed if you miss a payment. In this case an unsecured loan will be worth considering.
Low interest credit cards. When your debt is not too high and your credit score is pretty excellent, you will probably be able to apply for a credit card with a low interest rate or even a 0% rate on balance transfers. A credit card may really be able to offer a better rate and you would find on any loan. But, be prepared to pay off the balance of during the transfer period or you could end up with an even higher rate.
Check all the options before making a choice. As you research all the options it will quickly become clear if there is one obvious solution. For many individuals there will be more that one option so it is essential check them all out before making a final choice. Go to a range of different lenders and mortgage or loan brokers and obtain the best package for you. Remember you have the final say and just inquiring does not commit you to any course of action.
Debt consolidation can be a fantastic choice for many people when burdened by debt. But, it is not the only solution and getting out of debt will take a small determination, effort and some time no matter what course of action is used. The benefits are worth it though and your life will be much less stressful and enjoyable when you are not overwhelmed by debt.