Debt Consolidation – Know Your Options

Wazzup Pilipinas!

If you have ever got into debt, you know how frustrating it is till the time you do not come out of it. Your financial stability is at stake and you eventually, you lose your peace of mind. However, there are many solutions you can opt for, debt consolidation being one of them.

In this write-up, let us discuss more about the same that will cover the following topics-

What is debt consolidation?

Self-evaluation of your debt status

Mistakes related to a debt you must avoid

Best options to deal with debt

Role of credit score

Let us take a look at each of these topics one by one so that you can get out of debt by adopting a few reasonable and realistic steps.

What is debt consolidation?

Debt consolidation is the process in which you consolidate or “collate” all your financial liabilities as one and pay off your debt by taking out a loan that will be equal to the amount of all loans taken together.

In other words, you make it easier for you to handle your debts and pay off one creditor instead of dealing with multiple creditors at terms that will benefit you. The favorable terms usually include a lower rate of interest and provision to pay off your debt every month so that you can tackle the debt payment better.

However, just make sure that debt consolidation will be a good option in your case. Only then it makes sense. 

Self-evaluation of your debt status

Before taking any major step towards becoming debt free, evaluate your debts and their status. Generally speaking, you can be in debt for the following-

Credit card debt

Plastic card debt is one of the fastest piling debt that can go out of your hand. Even if you promise not to keep any balance on your credit card debt, most of the time, you fail to pay off in full, and it piles up.

Student loans

Not everyone is lucky enough to land themselves a job with a great salary right in the beginning. And this is when the trouble starts, when you have to pay off your student loan and also make ends meet.

Unsecured loans

You will come across many people that will look for quick fixes to solve their unexpected financial problems. For instance, payday loans are a classic example where you can get one easily without collateral, and you can avail them promptly.

Try to assess such loans that can prevent you from becoming debt free.

Utility bills, cellphone loans, medical bills

Paying off utility bills and medical bills out taking out loans makes sense. But if you have to be in debt for paying your cell phone bills, it indicates that you require better financial planning.

Planning your finances is of utmost importance as you can avoid taking out loans for expenses that you can curb or defer.

Mistakes related to debt settlement/consolidation you must avoid

Debt consolidation or debt settlement is always a good option provided they are meant for you. Also, if you are not confident about settling your debts on your own, you can seek the assistance of expert professionals that offer help as in Nationaldebtrelief.com.

Do not try to consolidate your debts with the help of these options-

Hard Money Loan

You will come across many types of loans that will attract high rates of interest but will bail you out of debt. Also, you will not require any credit check. These are again traps and will draw you into a vicious cycle of debt. You are already in debt, and due to these high-interest rate loans, if you fall behind on a payment, you will lose your financial stability to juggle the payment of this loan.

Avoid credit card transfers

If you have many credit cards and you have been paying off your bills on time, many credit card companies will prefer working with you. And if you fall behind on payment once, these companies will offer you plastic cards offering you zero percent interest rate for transferring the outstanding balance.

However, chances of escalating rates are high that usually takes place over a period of time and quite quickly. So, avoid transferring your existing credit card debts to a fresh card.

Best options to deal with debt

Check out the best debt consolidation options that you can opt for-

Refinance

One of the tapping into your home’s equity is to pay off debt is by refinancing. It is basically a new mortgage altogether. The amount you will be able to avail against refinancing depends on how much equity is in your home.

It is a good option if the rates of interest you are getting suits your repayment requirement.

HELOC

Home equity line of credit (HELOC), is an arrangement in which you use your house as collateral for taking out a loan. The difference between refinancing and HELOC is that in the case of the former, you pay a lower rate of interest as compared to HELOC that attracts a higher interest rate. The best part about HELOC is that you can enjoy tax deductibles on it of fees associated with this loan.

Role of credit score

Regardless of the type of loan you are planning to avail, if you have a good credit score to boast about, you can enjoy better terms on your loan. Check out the following-

You can call a score between 750 and 850 excellent

You can call your score good if it is between 700 and 750

The range between 650 and 700 is fair

If it is between 560 and 650, it is bad

You can call it Very bad if it between 560 and 300.

You can maintain a good credit score by being regular with your debt payments. Your financial behavior shows in the credit report that also helps lenders assess whether you are responsible enough to make repayments of any loan that you avail.