As easy as it is to get into debt, there are a different methods for consolidating your bills and lowering your monthly dues while still giving more to principal and becoming debt-free sooner than you thought possible.
If you think you’re ready to eliminate your unsecured debt, you need to consider your situation and then look at the best option for your financial burdens. Do you own a home? If you own, do you have equity in your home to realise? Can you afford more than your current financial obligations, or are you struggling to get by? Is your number one goal getting out of debt, or is it to meet your current financial obligations?
If you own property?, and have equity you can secure a line of credit with, you can look at a debt consolidation loan or a home equity loan. In this scenario, you are shifting your credit card debt from unsecured to secured debt, which gives you the option to lower your monthly payments and also lets you deduct the interest charges on your taxes. You may determine that this home equity loan can put you on a faster route to eliminating your unsecured debt. That’s because the interest rate on a debt consolidation loan would be much lower than what you’re paying towards high interest debt. Trading higher interest debts such as your credit cards for a lower interest payment can save you a lot every month which you can, in turn, put back toward paying off the home equity loan. Last, but certainly not least, the interest you pay on a home equity loan is a tax write off and that savings can be put toward your bills as well.
Or perhaps you already have a home equity loan you’ve been paying on for a while, it might be time to consolidate them into one loan. Many second mortgage in the last decade carried adjustable interest rates which have increased causing payments to rise. Consolidating your first mortgage and your adjustable rate home equity loan into one low fixed rate loan can also save you a great deal each month which you can use to make payments to higher interest debts.
Two other advantages you may gain through refinancing are the elimination of personal mortgage insurance and the chance to get cash out at closing. When you took out your original mortgage, did your lender require you to carry personal mortgage insurance due to a high loan to value? If so, refinancing may eliminate that requirement. If you have since built up some equity and your new loan value is low enough to drop the mortgage insurance, your payment amount will be much lower. You may also find that you can take some cash out of your home at closing without significantly increasing your monthly payments. That cash can go toward – you guessed it – your higher interest debts.
If you don’t own a home, or if you cannot qualify for a home equity loan, you can look at debt management options. This includes programs such as debt settlement and credit counselling. If your monthly payment is your number one concern, it’s worth a try to call your credit card companies and see if a debt management plan at a reduced interest rate can be agreed upon. This will allow you to pay more toward your balances each month and eliminate your debt sooner. While your creditors are under no obligation to change the terms of your agreement, they may very well be willing to do so, especially as it is to their advantage to receive payment, and negotiating a payment plan shows that you are taking the initiative to do just that.
If calling your creditors doesn’t work, or if you just want a quick fix, you can contact a debt management company. Debt settlement is a service for people who want to pay off their debt while avoiding bankruptcy.
The path to becoming debt free is as different as the ways you can get into debt in the first place. The first step toward paying off your debt is educating yourself with all the options available to you. Once you’ve identified your needs, you can get started taking the right steps for yourself.