If the idea of having fewer bills to deal with each month is appealing to you, debt consolidation may be the answer. However, bundling your bills into one payment – even with a lower interest rate – isn’t always the wisest option for you to take. It is important to understand all of your debt relief options before deciding how to manage your debts.
If You Decide to Consolidate Your Debt, Consider the Following Tips:
- Strive to pay your debt within three to five years. Taking the maximum amount of time offered to repay your debt only costs you more money in the long run.
- Make sure you understand the fine print of your consolidation agreement. Many lenders include balance transfer or application fees that can throw your whole financial plan off if you are not prepared for them.
- If an offer sounds too good to be true, it probably is. Be wary of scams.
If you own a home and you have built up some equity in it, you may want to consider refinancing your home and using the additional money over and above what you own on your current mortgage loan to pay more expensive debts. This strategy allows you to save money by playing a much lower interest rate on your home equity loan or refinanced mortgage. You may also be able to deduct the interest you are paying on the home loan. Additionally, the closing costs on many home loans are reasonable, which can also save you money.
There are also several cons to using the equity in your home to pay your bills. The primary one is that you are putting your house at risk. You must be confident that you can live on a budget and commit to paying off the home loan. You should also carefully consider whether to use a variable rate loan. While it may start out low, it could easily increase over time. Variable interest rates were a large factor in the recent housing crisis because homeowners could no longer afford their mortgage payments when their interest rates jumped. Finally, you must determine if you are extending the length of time it will take for you to pay your debt. The longer it takes you to pay your debt, the more it will cost you.
If you have questions regarding debt consolidation or other available debt-relief options, contact us today. The attorneys at Fitzgerald & Campbell represent debtors all over the State of California in debt settlement, collections harassment, and credit card lawsuits. If you have a matter relating to a debt you owe, contact us today by calling (844) 431-3851 for a consultation.