Bill Consolidation - What You Need To Know
By Brad Stroh
As easy as it is to get into debt, there are
a number of strategies for consolidating your bills and lowering your monthly
payments while still paying more to principal and becoming debt-free faster
than you thought possible.
If you’re ready to eliminate your credit card debt, you need to assess
your situation and then look at the best alternative for your financial needs.
Do you own a home? If you own, do you have equity in your home to tap? Can
you afford more than your monthly payments, or are you struggling to get
by? Is your number one goal getting out of debt, or is it to meet your monthly
payments? |
If you own
a home, and have equity available, you can look at a debt consolidation loan,
or a related solution – a home equity line of credit. In this scenario,
you are shifting your credit card debt from unsecured to secured debt, which
allows you to lower your monthly payment and also lets you deduct the interest
payments from your taxes. You may determine that this debt consolidation
loan, or second mortgage, can put you on a much faster track to eliminating
your debt. That’s because the interest rate on a second mortgage can
be much lower than what you’re paying toward credit cards or other high
interest debt. Trading higher interest debts such as these for a lower interest
payment can save you hundreds each month which you can, in turn, put back
toward paying off the debt. Last, but certainly not least, the interest you
pay on a second mortgage is tax deductible and that savings too can be put
toward your bills.
Or perhaps you already have a second mortgage you’ve been paying on
for a while. Especially if you got your first and second mortgages at the
same time, it might be time to consolidate them into one loan. Many second
mortgages in the last decade carried adjustable interest rates which have
increased causing payments to rise. Consolidating your first mortgage and
your adjustable rate second mortgage 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 to
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 own and have no available equity,
you can look at debt relief options – including debt settlement and
credit counseling. If your monthly payment is your number one concern, it’s
worth a try to call your credit card companies and see if a payment 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 credit card 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.
credit if it is repaid within a stipulated time.
|
If calling your
creditors doesn’t work, or if you just want a quick fix, you can contact
a debt settlement or credit counseling company. Debt settlement is a service
for consumers who want out of debt at the lowest cost, in the shortest time
frame, with the lowest payment… while avoiding bankruptcy. Credit
counseling, on the other hand, is a solution that lowers your interest rates
slightly and can get you a lower monthly payment.
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 eliminating 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.
Brad Stroh is currently co-CEO of Freedom Financial
Network and Bills.com. If you would like
more of Brad’s articles,
please visit the Bills.com information on
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