Exercise Caution When You Deal With Your Debts
There is no doubt that you can handle much of your debts on your own which sometimes may prove to be a very productive attempt but you will need to exercise enough caution while doing so. There is a lot of complications in debt management and it will differ according to the type of debt you currently hold. One small error may lead you into further trouble which you may find very hard to resolve.
If you are unsure or new to debt management or when you feel that you need the assistance of a debt consolidation company, go for it. It will be far more effective and result driven that your DIY venture.
Debt consolidation tools
To know about debt consolidation more than just the basics you will first need to know and review the various debt consolidation tools. This will help you to know the nuances in it and thereby help you to be cautious in your venture, DIY or otherwise.
There are different tools that you can wield to assist you in consolidating your debts but all of it has its signature pros and cons.
- You can make a balance transfer on your credit card debts. This is one of the easiest moves that you can make for your debt free journey. All you have to do in it is transfer your debts from the credit card carrying high interest rates to the one that carries much lower rate of interest. If you work with a pro then you can also come to know about the ways in which you can take the maximum advantage of the zero percent APR promotions and save big time. However, there will be fees to make such a transfer. Another significant thing to take care of is that according to the law, credit card companies that offer interest-free financing will waive the interest rates for at least six months. Therefore, if you do not pay down your debts significantly within that time, you will have to pay very high interest once again and will be right back where you started as the high interest rates will eat into your payments.
- You may take out an unsecured loan as well but just as these loans sound, there is no security of any collateral like your car or house pledged by you to the lender to take such a loan. This means that the rate of interest of these unsecured loans will be significantly high but lower than that of your credit cards. However, to take on such a loan you will need to have a really good credit score. Most of the banks do not lend such loans. Apart from that, if you manage to get such a loan you must show the discipline not to spend the amount received on anything else apart from paying of your credit card bills.
- If you feel you can even opt for a home equity loan. In this type of loan you pledge your house as collateral to the creditor. This means the rate of interest of these loans will be much lower than an unsecured loan thereby reducing your monthly bills by a considerable margin. However, most experts will suggest you to keep it as your last option. This is because this type of loan is considered to be the most dangerous of all forms of debt consolidation loan as you are risking your home for it. If you cannot pay up on time and fully, you stand a chance to end up homeless.
Therefore, all types of debt consolidation loans have their pros and cons which is why you should consult with a professional debt consolidation firm. However, you will need to be cautious in hiring the service of a debt consolidation firm as well.
Follow debt management program diligently
When you enter into a debt management program which is also termed as DMP, you must be very diligent as it may affect your entire finance adversely if you do not.
- The first thing you should do is stop using your credit cards. Now, this can be a bit difficult for you if you are addicted to using credit cards. However, if you want to get rid of your debts seriously then you should let go of those cards.
- If you really find it difficult then the only alternative is use your debit card. The difference in using a debit card is that you will be using your money and only that much you can afford. Using credit cards means you are using more money than you can afford and that too this money belongs to someone else. You will have to pay interest on credit card but no interest if you use your debit card. This way you will stop accumulating debt any further.
You must follow the advice and plan designed by the professional debt consolidation company so that you not only merge successfully from your DMP and have zero debt but also have zero addiction of credit cards as well. This is a bonus that you get from such professional service. You may take up a new credit card later and use it responsibly or may not even need any of it any longer. Sometimes, doing it alone is not only lonely but also less productive.
Managing too much debt
If you have too much debt of different types then you may get turned down for a debt consolidation loan. Usually banks and credit unions are unsure about you repaying ability seeing the already huge debt you are in and therefore they turn down your application.
In such a situation you may try other alternative sources to avail a long with bad credit of lower than 500 FICO score but it will have so high rate of interest that it will cut deeply into what you save in the first place.
The best way to choose is credit counseling by an expert for a free debt analysis after considering your financial situation in detail. Thankfully, the experts can show you still have other options which may be even better.