How Can I Lower My Debt?
If a debtor is lucky, he or she will realize that something has to change in their lives before things get better. That no magical influx of money is going to help them rapidly jump out of their debt. We consider this a lucky scenario because if the person does not realize this, then he or she could lose everything and remain forever in the shadow of their previous debts—even after a bankruptcy.
This article goes over some of the fastest methods of relieving debt and straightening your financial ship, such as consolidating debt, secured loans, and loan renegotiation.
Consolidation: How It Works
When someone consolidates their debt, they request a loan from an organization that deals specifically with debt consolidation. All debt that that person has is merged into a single value. Meanwhile, that lender closes all of your outstanding loans.
All of this sounds very nice—and in many cases, it is. Not only is it more convenient to pay one monthly charge on your debt, it also eliminates confusion and helps organize the debtor’s finances. Not only that, but it can (potentially) lower your payments, especially when you consider any high interest that you’re paying on that debt.
Things to consider before you elect to consolidate
Consolidation isn’t for everyone. One person’s debt could benefit immensely from consolidation, while another’s would be unaffected. For instance, if your debt is extensive, and you consolidate, you may end up paying more over the long run than you would if you had just paid off the debt with each individual lender. This is especially true if you select to have very low monthly payments, which in turn increases the amount you pay in interest over the course of that debt’s lifetime.
Another thing to consider is the secured loan process. Many lenders will drop interest rates dramatically if you agree to a secured loan (a loan that allows a lender to take possession of the asset that you’re trying to pay off, such as, for instance, your home.) These low interest rates may not be reflected with your loan consolidator.
Finally, you’ll want to look into Early Repayment Charges (ERCs). If, you do decide to close out your loan and consolidate all debt with another organization, you may be charged an ERC. It’s possible that the ERC is a dramatic fee that you’d very much want to avoid. Should you be close to paying off the debt with that specific lender, it’s in your best interest to continue with that lender to avoid any ERC fees.
Are there alternatives to consolidation?
Yes there are! For debtors that have maintained a responsible history of payments, it may be possible to restructure their debt with the lenders themselves, thereby lowering the interest that you’re paying on that debt. This way you can avoid ERC charges entirely, as well as the time it would take you to identify a loan consolidator and prepare for the transition.