By Keith Burgess
Are you finding it hard to meet all your financial obligations each month? Are you worried that you may nor be able to recover? Find out how you might be able to solve the problem quickly…
If you have high interest debts like payday loans, personal loans or credit card debt, then you could be paying more that you need in interest charges. Consider consolidating your debt to one low-interest loan. Depending on how much debt you have and the interest you pay, this could save you hundreds of dollars every month and make your life so much easier. Read on to see how you can make this happen.
Loan consolidation can be achieved in three main ways:
- Consolidate your debts to your home mortgage account. This is only applicable if you have a mortgage and have equity in your home (equity is the difference between what your home is worth and how much is owing. If your home is worth more than your debt, then the difference is called equity).
- Apply for a low interest loan and consolidate existing loans to this one account.
- Apply for a debt agreement.
The interest charged against a mortgage on a home is one of the lowest around. That’s because the bank or lender has security. If you were to default on your loan payments, the lender could repossess the home and sell it to recover the debt. As there is less risk for the lender, so they are willing to lower the interest rate.
This is a great option if you have a mortgage and have equity in your home. If you do, then talk to your lender about extending your mortgage and use the difference to pay down your high interest loans.
There may be a cost to extend your mortgage, so please check the fees before you consider this option.
Low Interest Loans
If you don’t have a mortgage with equity, you can apply for a low interest low from your bank. This is effectively about applying for a new loan with a lower interest rate than your existing loans and then using this loan to pay down all the debt in your high interest accounts. The benefit is that you will have only one monthly payment to make, so it is easy, and the overall interest cost should be lower.
One note of caution. You are effectively taking out an additional loan, so can expect to pay loan establishment fees and potentially other costs. Please check the amount of these costs because they are often added to the loan amount and will drive up your monthly interest costs. What you want to avoid is having a new loan that costs more than your existing loans to pay off because these fees have been added.
A debt agreement is often used as a last resort to avoid declaring bankruptcy. This is a formal arrangement between you and your creditors whereby you agree to pay an agreed amount monthly to service your debts. Often you will be able to negotiate an agreement where you will not have to pay all the money back. This is because creditors will be aware that you are experiencing difficulty paying your debts and would rather get part of the money back than risk getting nothing (e.g. if you were to declare bankruptcy).
There are many reputable debt companies that will help you negotiate a debt agreement with your creditors. Many will also take over all communication with creditors so that you only have to pay them and they handle the distribution of funds to creditors. This can be a good option if you are feeling stressed and need a break from the pressure. In some countries this process is overseen by Government agencies and is underpinned by law. Check out the options available to you.
Final Note of Caution
Once you have a solution that works for you, consider changing the spending behavior that got you into trouble in the first place. If you do not then you might well find yourself in the same situation in a few months. Consider learning about how to create and manage to a budget. There are plenty of good resources online to help you learn about budgeting.
If you find yourself in financial difficulty, you might find one of t5he above debt consolidation solutions will work for you. If you have a mortgage and have equity in your home it should be relatively easy. If you are in real difficulty and simply can’t make your payments, you might have fewer choices and could consider a debt agreement.