Debt Consolidation Loans

Debt Consolidation Loans:

Debt consolidation is a process by which loans, credit card debt and other outstanding credit is rolled into one loan with one fixed interest rate and one monthly payment.  A simple way to do this is to request a loan from a banking institution specifically for debt consolidation.  If the loan is approved the bank will require that the funds be paid directly to the creditor or holders of the outstanding debt.  All previous debts will be paid and the loan repayment will be one single payment to the banking institution that paid the previous debts.  Another way to consolidate outstanding loans and debt is to apply for a second mortgage.  This is a loan taken out on the equity of the home and is paid as a separate payment with separate interest rates.  Both options may have origination fees and finance charges.  Be sure to ask questions and research all possible options before taking out any loan.

Budgeting:

Congratulations.  You’ve taken the first step in organizing and managing your finances, you’ve admitted that you have a problem with overspending, over lending or have had some life adjustment that caused you to fall knee deep into debt.  To start a budget it is important to write down exactly how much money comes in from all sources, on a weekly or monthly basis, and honestly write down how much money goes out and exactly where it goes.

Divide the list of expenditures into fixed expenses, those that do not change such as a car payment, mortgage or car insurance. Next list the expenses that vary each month such as entertainment, fuel or dry cleaning.

Writing down expenses is a sure fire way to track where the funds are going and in this way, choose what expenditures are necessary, which ones can be cut back and which ones can be eliminated altogether.

The goal of making a budget is to ensure that the most important expenses are paid every month.  These include food, shelter, insurance, healthcare and education.

If you need help making a budget, the library usually has books that have step by step instructions.  There are even low or no cost consumer credit counseling agencies which offer assistance in managing debt and creating a budget.

One way to help shave down monthly expenses is to call your creditors and explain your financial hardship and ask for reduced interest rates or extended payments.  It is important to take matters into your own hands before the debts are turned over to debt collection agencies.  As with any renegotiation of terms, fees may apply.  Be sure to ask for specifics before agreeing to new terms.

Secured debt is debt that is tied to an asset such as a car loan or mortgage.  If you fall behind on your car payment, the creditor can repossess it at any time.  If this happens you will still be responsible for the balance of the loan plus repossession and other fees.  If you feel as if you are in danger of repossession it may be best to sell the car and pay off the loan.  This will also save your credit report as well.

If you feel as if you are in danger of falling behind on your mortgage it is imperative that you contact your lender immediately so as to avoid foreclosure.  Most lenders will work with consumers with whom it feels are acting in good faith.  Some lenders reduce or suspend payments for an agreed upon amount of time.  Some lenders may change the terms of the loan and extend payments out so that the monthly payments are lower.  If the lender is unable to find an affordable option, contact the housing counseling agency which can be found through the local Department of Housing and Urban Development or the housing authority in your state.  These agencies may be able to work with you and your mortgage company to find an affordable solution.  As with any change in terms of a loan, be sure to ask how the changes will affect your credit, the interest rates and the monthly payments and what long term ramifications exist, if any.