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Debt Consolidation


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Credit Card Types • Debt Consolidation • Fixing Bad Credit

credit card debt consolidation Debt consolidation means bundling all of your different debts into one.  The overall goal is to make paying your debts more manageable.  Generally, you can accomplish that in two ways:  by lowering the interest rate you pay on your debts or by lowering the total monthly payment, usually by extending the re-payment term.

The best time to consider debt consolidation is before you default on your current debt obligations.  If you have already defaulted, and your credit is poor, you will find it more difficult to get a consolidation loan (not impossible, but more difficult).

First let's consider the options for those of you who haven't defaulted on your debt obligations and have decent credit scores.  Say you can only afford to make the minimum payments on your credit cards, which are maxed out, and carry 29% interest rates.  You feel like it'll be an eternity before you ever pay off those credit cards, and you have no money left over at the end of the month for emergency expenses or fun.

You have a couple of good options, which you should seriously consider before your debt spirals out of control:

  1. If you have equity in your home, you could take out a home equity loan or home equity line of credit to pay off the high-interest credit card debt.  If you stretch the loan out over a long enough period of time, you may even be able to lower your total monthly debt payments enough to have money left over at the end of the month.
  2. You could take out a loan against your car (if it's already paid for).
  3. You could take out an unsecured personal loan.
The bottom line is that you want to do two things:  1) get a lower interest rate; 2) stretch out your payments over a longer period of time so that your total monthly payments are low enough to leave you some extra funds at the end of the month (which you can use to start an emergency savings fund).  For more information and consumer tips, check out the Federal Trade Commission's consumer credit resources.

If you don't have decent credit, have already defaulted on your current debt obligations, or are otherwise unable to get a debt consolidation loan, consider hiring a debt consolidation company, which can help you negotiate better repayment terms with your creditors.  But be aware that debt consolidation companies often charge fees for their services.  For help finding a reputable debt consolidation company, check out the National Foundation for Credit Counseling website.

In these situations, it is especially important for the head of household to consider his family's financial security in the event of his illness, injury, or death.  Health, accident, and term life insurance policies are available to provide some measure of financial protection for these eventualities.

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