Posted: July 6th, 2011 | Author: Joe | Filed under: Debt | Tags: Debt, debt consolidation, loan consolidation, loans, Tips | No Comments »
What does debt consolidation mean? The term seems to have different uses among different people, but here are 3 different types of debt consolidation.
Debt consolidation loan
When most people talk about debt consolidation, they mean a debt consolidation loan. Find out more what a debt consolidation loan is here.
If, for example, you owe money on two credit cards and a loan, it may be better to take out one large loan, big enough to pay off all three debts at the same time. That would leave you with one payment to make every month instead of three.
Making one payment every month is just easier than arranging and budgeting for three separate payments – and you will only have to deal with one creditor.
You could even reduce the amount you pay every month if your loan has a longer repayment period. However, paying off your loan over a longer period could also increase how much you pay overall, due to interest.
Anyone interested in debt consolidation loans could try an online debt consolidation calculator. They help you to estimate your monthly repayments once you’ve entered a loan amount, interest rate and repayment period.
If your earnings change from month to month, or you’re not sure you’d be able to make regular repayments, you might find a different approach is more appropriate.
Balance Transfer
Another way to consolidate debts, which can work well for credit card debt, is to transfer multiple debts onto a 0% credit card. ‘Balance transfer’ cards don’t charge interest for a set period, after which time the card starts charging interest.
For that reason, a balance transfer could be ideal if you are able to clear the balance before the interest-free period ends. Otherwise, it may be possible to transfer the balance to another interest-free credit card. However, you’d normally be charged a transfer fee each time, something like 3%. For large balances, that could be quite expensive.
Other forms of debt consolidation
There are other ways of consolidating problem debts into one monthly payment without borrowing any more money. These include IVAs (Individual Voluntary Arrangements) and debt management plans.
Useful websites:
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Posted: November 5th, 2009 | Author: Joe | Filed under: Debt | Tags: Debt, debt settlement, loan consolidation | 5 Comments »
Debt settlement companies and consolidation loans look like a lifeline when you’re staring a 5-figure debt load in the eye. But this is rarely the case. In fact, most people only end up prolonging their indebtedness and adding unnecessary fees and costs to the effort to find financial freedom.
As this article from The Grand Junction Daily Sentinel shows, these services are often little more than a costly waste of time.
Data collected from Colorado’s 42 registered debt-settlement and debt-consolidation firms showed that fewer than 10 percent of consumers who signed on with these companies between 2006 and 2008 had paid off debt or completed agreements.
One reason these services don’t work is because they’re simply disreputable and out to take your money and run. The article references some of the hazards of dealing with many debt settlement companies, some of which I wrote about Debt Consolidation and Your Credit Score. The biggest red flag is by far a plan that tells you to stop paying your creditor.
Another common problem is that the customers pay the debt consolidation company the monthly payment, but the company fails to pass a portion on to the creditor. It not only racks up the debt they’re trying to pay off, but ruins their credit score in the process.
Let’s leave aside the excessive fees, and damage to your credit score for a minute and return to that quote for the newspaper article:
…fewer than 10 percent of consumers who signed on with these companies between 2006 and 2008 had paid off debt or completed agreements.
This pretty much confirms that these programs don’t really solve the problem they portend to solve. But I think a major reason that debt settlement programs don’t work is that they don’t address the root cause of being in debt in the first place.
Debt consolidation loans can be a great tool that enables you to get your debt into a more manageable configuration, but if you still spend more than you make and live beyond your means, never saving for any potential emergency then you only going to find yourself in the same place further down the road.
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Posted: August 6th, 2008 | Author: Joe | Filed under: Debt | Tags: Debt, loan consolidation, loans, Student Loan, Student Loan Consolidation | 2 Comments »
Got student loan debt?
If you do, you’re not alone. With more people attending higher education than ever before and tuition skyrocketing, graduates are finding themselves saddled with 5 figure debt before they’ve even begun their careers.
I was fairly lucky to do as well I did. Having no scholarship and a deteriorating family situation that left me with very little in college savings available, it was federal loans and summer jobs for me. Still, I had about $10,000 in student loans by the time I finished – and I went to a community college the first 2 years and a state school the last 2 years. I can’t imagine people who went to a 4 year school for the full 4 years.
So, if you’re one of the unlucky ones, like me, who don’t have a 4 year degree gifted to them and emerge from the halls of higher learning with higher levels of debt than you’d ever thought possible, now is the time to take action. Maybe.
Since July 1, 2008 you can consolidate your Stafford and PLUS Loans and save up to 3% on the interest rate.
A recent MSN Money Central article by Liz Pulliam Weston provides the details, but the rates look excellent:
“…3.62% to 4.25% on Stafford Loans and 5.13% on PLUS Loans for graduate students and parents.”
I consolidated my student loans about 6 years ago, and at that time the best rate I could get was 4.5%. But it was A LOT better than the 6.25% I had when I graduated.
There are some exceptions (of course) that exclude some loans from being consolidated:
Only federal loans need apply.
Due to the credit crunch and recent changes to student loan funding from Congress, loan consolidation is not as profitable as it once was. This has forced many lenders to move on to greener pastures, as it were. This means chances of your consolidating a student loan that is not a federal loan are pretty slim.
No second spin on the consolidation merry-go-round.
These new rates only apply to variable-rate federal loans. Anyone who has already consolidated their student loans to a fixed rate loan is excluded from this opportunity.
In a state of grace? Wait your turn.
If your loan is in a period of grace where you don’t need to begin repayment, if you’re still in school for instance, you’ll have to let this opportunity pass. This used to be an option, but Congress eliminated it in 2006. Thanks guys.
Still, there are some additional perks as well.
- There are no fees for consolidating federal debt.
- Interest is Tax Deductible.
- You can get a quarter-point discount for agreeing to automatic debits.
Check out the U.S. Department of Education website for more details at: http://loanconsolidation.ed.gov/
AND this is one of those rare cases in finance where procrastination pays off. Here’s an article on BankRate, titled No rush to consolidate student loans this year that details why it was smart to wait until after July 1st.
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