Debt Consolidation And Debt Management For Maximum Relief: Part
2

In Part 1, we discussed how debt management helps you learn how
to get a handle on your finances However, using debt
consolidation and management together will provide you maximum
financial results Once you have developed good skills for
managing your debt, you need to learn some ways to reduce your
monthly payments and financial stress Here are six options for
consolidating your debt Debt Consolidation Debt Consolidation
in addition to debt management is important It can help you
understand what options you can use help reduce your financial
stress
Bill Consolidation is frequently used to combine all of one’s
bills into one bill Normally, debt consolidation will reduce
the amount of your monthly payments It may also reduce your
interest rate Dealing with one company and one bill is
generally much easier than keeping track of many debts and many
companies
There are many different ways to consolidate your debt Which
option is best for you will depend upon your financial
situation Consolidating your bills can relieve a lot of stress
However, remember that you must follow the debt management
advice, as discussed in part 1, to insure successful debt relief
1 Home Refinance If you own a home, you can refinance it The
objective of a refinance should be to get a lower fixed interest
rate If you have an adjustable mortgage rate, there is always
the possibility that your payments will increase
To be successful at eliminating your debt, you should
concentrate on getting the lowest fixed interest rate possible
When your payments are always the same, it’s much easier to plan
and execute your debt free plan
2 Home Equity A home equity loan is a second mortgage It
usually has a fixed interest rate and fixed time frame The
interest you pay is normally tax deductible and there is no
penalty for paying off the loan early
Be careful with this type of loan Ideally, you would use this
option when you have substantial equity in your home and plan to
live in it for the next several years
If the total amount you borrow for the first and second mortgage
is equal to or greater than the value of the home, you could
have some difficult experiences For example, if you wanted to
sell your home, you may have problems with your creditors If
you do sell the home, you will more than likely have debt left
over which you must pay The objective of home ownership is not
to increase your debt
3 Home Equity Line of Credit A home equity line of credit is
where you use your home as collateral for a loan It is setting
up a revolving line of credit You can use the credit
repeatedly The amount of your payment is dependent upon your
outstanding balance That means your payments may not be the
same You can make interest only payments That is not a good
idea because it does not reduce your debt
Home equity loans are normally set up for a five to ten year
period There is a penalty for early termination of the loan
After the initial loan period, the equity loan converts to a
variable principal and interest loan You must pay this off over
a set period, usually 5 to 15 years
The main concern with either type of debt consolidation mortgage
loan is simple If you default on the payment, you loose your
home It’s one thing to have a lot of debt It’s an entirely
different problem to have no home
4 Credit Card Consolidation Many people turn to credit card
debt consolidation to as a means of regaining control of their
finances In essence, you take all the credit card debt from all
your credit cards and put that amount onto one credit card
There is very little paper work involved You do not have to go
through a long approval processes Many credit card companies
offer a twelve-month interest free period for consolidating your
debt onto their credit card
In addition, after the twelve-month period is over, you will
likely have a reduced interest rate As long as you make regular
payments on time, you can substantially reduce your debt Do not
put any more charges on the card If you do, you’re only
increasing your debt
However, there is a catch If you are late on a payment or your
payment does not process correctly, your free grace period will
likely be over and you will immediately be charged a higher
interest rate Your real education is in reading the fine print
of the agreement
Credit card consolidation is dangerous unless you’re very
disciplined and have a very solid debt reduction plan
5 Settling Your Debt Debt settlement occurs when you work with
a debt management company The company will normally negotiate
your debt balance You pay the company and the company works
with your creditors Normally, these companies reduce your debt
by half, including any fees the company may charge
The problem with debt settlement is two fold First, your credit
rating may drop significantly Second, you must work with a
reputable firm If you do not, your debt will increase and so
will your financial problems
Be sure you do your homework before considering this option
Check out several companies Compare their services Compare
their fees Talk with others that have used the company
6 Borrow From Retirement Funds If you have a retirement pension
plan such as a 401(k), you can borrow from your retirement fund
There is no long processing period and no credit checks The
interest rate is typically quite low The best part is that the
interest is paid to you It is your retirement fund You are the
lender
It is very important that you understand that you are borrowing
the money from your retirement fund You are not withdrawing it
If you withdraw the money, you will have two problems First,
you will pay taxes on the amount your withdraw Two, you are
subject to a ten percent penalty
The other potential problem is if you loose or quit your job
You may be required to pay back the loan immediately If you
don’t, you will again be subject to paying taxes and a ten
percent penalty
Before using this option, consider two things: 1) It will reduce
the amount of your retirement funds If you are younger, you may
have sufficient time to recover before retirement 2) High
interest debt will also reduce the money you have for your
financial future When you pay off the higher debts, it may
provide the immediate help you need to get back on track
It would be wise to get counsel from your company about your
specific financial situation before making a decision to borrow
from your retirement funds
So, what have we learned? Debt management helps you learn how to
improve your money management skills Debt consolidation
provides you with the tools to best use the financial resources
you have
To get the maximum financial results and reduce your debt, use
both debt consolidation and management to your advantage The
time to start is today

Tags | advice, consolidating, consolidation, debt, equity, financial, management, mortgage, relief, result, substantial