Debt consolidation: Cure or Continued Problems? | Fair Loan Rate!

    Interest rates never been so low in past several years as much low they are now it’s to tempt consumers to take on additional debt to facilitate existing credit affliction. Its main purpose is to combine different higher interest balances into one, by that it will be easy to handle and also a low cost package. So be careful of that what looks to be a quick fix. Chris Viale General Manager of Cambridge Credit Corp. said that it’s not a credit cure that’s only a symptomatic relief, which you will get. This low interest approach haves several forms like debt consolidation loans, balance transfers to a zero percent credit card and home equity loans or lines of credit. But according Viale 70% of Americans who gets home equity loan or any other type of loan to pay off credit cards end up the debt load within two years if interest rate is not higher. Viale’s statistics had highlighted the major problem about debt consolidation, which leans to get trouble. By taking another creditor it’s like adding fuel to fire because in real that will be your own money, which will be, lose out. You wont qualify for the very low interest rates that are advertised when you will take on so much debt which you are looking for more as a solution because such facility is for the people who haves stellar credit ratings. If you make your mind for being more disciplined for using your credit then debt consolidation can be considered although it haves risks. Here are the some common forms of debt consolidation that how they work and what are the risks in it.   Home equity loan or line of credit Home equity loan is considered as a quick and easy way to get out of debt. You can get money to pay your bills and taxes by leveraging your house value. But taking loan against your house can affect adverse and in result defaulter you can lose your home. Dianne Giarratano the Director of education at Garden State Consumer Credit Counseling in Freehold, N.J. said that some hardship occurs and now they have double the debt and it its secured by their home then they could lose it. In some cases equity loan interest, which is tax deductible, can be limited. Though it gives a tax break but according to Cambridge’s Viale “ that doesn’t mean it makes fiscal senseâ€�. Giarratano said that how much you can borrow those banks would tell you but it don’t mean you should borrow the total amount, but most of people borrows total amount which is not the right way. Though home equity loan works for some debt burdened homeowners to pay off creditors. Plan it well so that you can make a wise use of home equity dollars and cents. Zero Percent Credit Card Such cases in which people won’t own a house, they turns to zero percent credit cards for debt reduction. Companies offer low interest rates as attraction for you to switch credit card vendors. Most of credit card companies target consumers with better credit so that may leave someone struggling with debt without this option. If you get the zero percent or single digit rate on your credit card, that wont means it will last forever for that its necessary you should know when it will end and what the rate is expected to jump to when it does. You can keep low rate lasting by paying on time even a single late payment will make the company to jack up the rate, and also look to hidden charges and fees which can increase the actual cost of credit. According to Viale it’s a short term fix that only works when you are giving a great attention about paying it and stay on top of it and before the low interest rate expires you move onto another credit card. But opening new credit card accounts every six months can affect negatively your credit rating. To cut down your debt load successfully you have to pay a lot more than smallest amount the card company accepts, especially after the zero rate disappears. As Viale said that debt wont be cut down by paying the minimum for $20,000 debt. For instance you transfers $20,000 of other debt to a zero percent card and paid $1,000 on it and on meantime the rate jumps up to 14%and if you are making minimum monthly payments then it will take you 1,134 months or 94.5 years to pay off rest of $19,000. If you are having a such long life then interest amount which you will pay for that will be $64,805 in simple words you will have to pay back thrice more than your debt amount. Debt Consolidation Loan Though credit card calculations above look scary but there is always another option debt consolidation loan. Their financial products are advertised so much and there are chances that you get daily so many such suggestions about this as solution to your growing debt problem. The main attractive thing of consolidation loans is that they are convenient in way to take big loan from one place and pay all of those accounts instead of paying 20 different creditors who are charging different rates at different times of the month. It looks easy but that depends on your savings. Before taking loan always be sure that the costs of the new bundled loan are less than what you were paying already to various creditors. Most of consolidation loan candidates wont get the lowest available interest rate because of their current credit affliction and also they cant get lowest interest rate if they don’t have anything to secure the loan such as home. Is it a better choice? To assure that compute interest and fees on all your existing accounts to find out the total of the payments you make. After that compare that figure which you got from calculation with the consolidation loan numbers then you will truly know the better choice. According to Deborah McNaughton, author of  “The Get Out of Debt Kitâ€� as for buying anything we looks to different shops to get on less rate same is with loan interest rate, may be the bank down street will offer you an attractive loan rate, but check of your local credit union can turn up better terms because Credit unions are tend to be more merciful than banks. Managing, not adding, debt Viale favor’s debt managements more that’s not surprising he is head of a debt management firm but Mc Naughton and other experts also points for importance of credit counseling instead of shifting debt. They favor debt management because it costs less and is quicker than a debt consolidation loan. Viale explained that if someone take $20,000 debt he will payoff his debt in four to six years by using a credit counselor and will end up paying $6,000 to $8,000 interest and fees. In other case if someone take 15-year home equity loan at 10% because of not having good credit which get him a lower rate, the calculation according to this rate shows he will end up paying $ 18,886 in interest aside from the real amount of $20,000 that he borrowed. When you can’t get a handle on your bills by yourself then its better for you to explore credit counseling. By having professional help in managing your debt can help you change your credit behavior. People that have taken on too much debt tend to go into denial; they’d rather not know how much debt they owe. A professional debt manager will make you face up to your obligations. Credit counseling agencies will restrain from taking more debts. In exchange for consolidating your debt and working with your creditors to reduce your payments for that credit counselors will force you to give up your credit cards. Anyhow credit counseling also haves costs. One of its drawbacks is that your reduced payment plan will probably be shown up on your credit report, though your creditor agreed to the reduced payment but technically you haven’t paid your account as written in your original credit agreement. Another unsuspected danger is the disreputable debt counselor. There are some credit counseling and debt consolidation companies who only makes money from debts ridden consumers. Some companies provide poor service and charges sky-high fees and there are totally fraud companies also. To avoid the scams and poor service companies its better to confirm for any reputable firm and verify its certifications or third party registrations. Check with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to see if the service you are considering is a member of either group also ask for references and then confirm them. Make sure that the debt management or credit counseling firm answers all your questions and you understand it fully that how the process will work and what it will cost. On other hand if company wont gives you straight answers or you do not understand what they are saying then never sign up with that company.     Related Posts: Why You Should Consider Debt ConsolidationMortgage Interest Rates Trends: Historical Graph For Long Term Trends From 1984-2009Consolidate Debt Through Your Home’s Equity ValueConsolidate Your Loans; It’s a Right Move!Top 10 Debt Consolidation Companies To Help You In Debt SettlementDebt Consolidation LenderSolve All Credit Card Problems Using A Debt Consolidation LoanMortgage Interest Rate Trends: Historical Graph for 3 Year Mortgage RatesBankruptcy and Debt ConsolidationIs it Wise to Get Debt Consolidation Refinance service? --> Tagged as: Association of Independent Consumer Credit Counseling Agencies, bank, Business_Finance, Cambridge, Cambridge Credit Corp., Chris Viale, credit, credit card, Credit counseling, credit counselor, credit history, Deborah McNaughton, debt, Debt Consolidation, Dianne Giarratano, Director of education, disreputable debt counselor, financial products, Freehold, General Manager, head, loan, National Foundation of Credit Counseling, New Jersey, personal finance, professional debt manager, united states