Credit Repair|Debt Free Living

Consolidate Debt Loans

January 30th, 2008 Subscribe To Our Feed

Now is the time to Consolidate Debt Loans

Debt consolidation is a process that many Americans are considering; with interest rates rising, mortgage payments going through the roof due to Adjustable Rate Mortgages, and credit card bills mounting. The ultimate aim is to get out from under your credit card debts.

Credit counselors generally recommend that the maximum percentage of your monthly income that you should pay on debt reduction is around 20%; the optimum pattern is 50% on necessities (food, groceries, utilities), 20% on debt reduction, 20% on saving for emergencies, and 10% for fun and entertainment. Getting out of debt doesn’t mean that you need to become an ascetic, eschewing all fun things like going to a movie or buying a new book. It does mean that you need to build a budget and stick to it, and a debt consolidation loan is a good tool for doing so when thinking about how to consolidate all debts or loans. The 20% limit is set so that if you ever have an emergency, you don’t make your credit problems worse by missing payments.

Debt consolidation loans can be either secured or unsecured loans; if you’re looking to get the lowest possible interest rate, a secured loan is generally going to have a lower rate and more favorable terms. It will also require that you collateralize the loan with your home or some other significant asset of value. Secured loans carry the risk, if you default, of losing the collateral that you put up. If your debt is less than 20% of your annual income, it’s reasonable to find unsecured loans for debt consolidation.

It’s important to note that debt consolidation is not a magic carpet, or a broom to brush your debts away it allows you to consolidate debt loans by assisting with one low payment a month. It’s part of a structured financial management package designed to help you recover from bad credit decisions. It will only work if you have the fiscal discipline to make a budget and stick to it, and it will hurt you badly if you mess it up. A good analogy for debt consolidation is that it’s a “second chance” at getting your credit management under control.

Before you sign a contract for a debt consolidation loan, be sure to both comparison shop for lowest rates, lowest signing fees and hidden penalties. In particular, look out for escalator clauses on the interest rates, which have been used to “poison bill” debt consolidation loans from time to time. Also watch out for hidden fees and penalties for paying early. When you’ve got several debt consolidation loan offers, consult with a credit counselor about which one works best for you, and to help you set up a budget you can live with and afford. There are many ways to consolidate debt loans but making sure to do all of your homework first can help save you debt and credit problems moving forward.