Debt Consolidation

Debt consolidation is a high priority if you are drowning in deep credit card debt. If you are having trouble paying those monthly minimums, it’s time for A Debt Consolidation Plan Of Action!

But before you jump right in and call the first debt consolidation service in the book, you’d better read this special report and discover all of your debt consolidation options. You must be certain that you are making the most practical decision based upon you’re specific financial situation.

Most consumers considering debt consolidation have read a few articles here or there, but don’t realize the magnitude of what debt consolidation really is or how it will affect their credit in the long run.

Basically, there are six levels of debt consolidation, depending on the severity of your financial situation. If step one works well for you, great! Use it to get out of debt. If not, move to step two and give it a shot. Each step gets a bit more drastic and affects your credit score a bit more, but there is a debt consolidation action plan that will work for you.

The first step to Debt Consolidation is constructing a Debt Pay Off Plan. Many consumers have stacks of bills and credit cards that they pay monthly, but have no specific repayment plan. In fact, they really don’t even know how or when they will be able to pay off their debts. With a clear plan in place, many people who once thought their only hope was to file bankruptcy found out that they really can handle their own debts with a solid consolidation pay off plan.

The secret to a successful debt consolidation pay off plan is to reorganize your payments so that as much money as possible goes toward paying down your principle debt, and as little as possible goes toward paying interest.

The two keys to optimizing your debt consolidation payments this way is having a rock solid written plan for paying off your debts, and knowing exactly how to pay off your debts as fast as possible.

For instance, let’s say you have 3 minimum credit card payments due each month totaling $520. This money is taken out of your paycheck each month to pay your credit card debt, you have learned to live without this money, it is allotted to pay your debts. Here is how we will put this money to work for you in your new debt consolidation pay off plan.

If you pay the minimum payment on each card this month, your balance will be paid down by $5 next month. So, when next month’s minimum payments are due they will be $515 rather than $520. Take the extra $5 that you just saved and add it to your payment on the highest interest rate credit card you have.

Continue paying the monthly minimums on the other two cards, but on your highest interest rate card, continue adding the extra few dollars savings each month. After a few months, you will create a snowball effect where you can pay off your debt very quickly. The key is to always apply the biggest payment to the highest interest rate debt first.

If you’re really in deep debt, then the pay off plan may not work for you. The next step to consolidating your debt is to find and qualify for an unsecured debt consolidation loan.

Personal debt consolidation loans have become hard to find due to credit card companies offering exceptional rates and easy qualification processes. Credit card debt consolidation loans with low interest rates can be tricky to find, especially if you have a substantial amount of debt.

It is important to find the lowest fixed interest rate possible when consolidating debt, and pay it off quickly by applying a debt consolidation pay off plan as described above to your new account. Always attempt to negotiate a lower interest rate before you agree to their terms, you’d be surprised how many agents will reduce your rate just by asking them to, especially if you have a good credit score.  

If you’re credit score isn’t very good, then you may need to look into secured debt consolidation, which is option 3 of out debt consolidation action plan. Home equity, refinancing and retirement loans are three of the most popular secured debt consolidation sources, however they do carry some risk. Home equity loans offer good low rates, are tax deductable, and have no closing costs, but the interest rates are variable and there is a big risk of losing your home if you can’t repay your debt consolidation loan.

Another way to cash in on the equity in your home is to refinance it for debt consolidation. This is called a ‘cash out refinance’, and you need to be careful here, there are three downsides to using this debt consolidation method. First, you’ll have to start over with another long term loan, there may be a prepayment penalty and you may get stuck paying a higher rate than you are currently paying on your credit cards.

Using retirement funds from your 401k or 403 b or pension plan for debt consolidation is another very easy way to consolidate credit card debt. But be advised: it is better to borrow against it rather than withdraw from it, because you will have to pay taxes and penalties.

If you don’t want to short change your retirement, or reinvest in your home to consolidate your debts, you may need to check out option four of our debt consolidation plan, credit counseling.

Non profit credit counseling services are a good debt consolidation alternative for consumers who have poor credit or a lot of debt to pay off. Credit counseling helps you get a low monthly payment and lower interest rates, however you will end up paying back about one in a half times the amount of your original debt. In some cases, this amount could be substantially less than if you just kept paying monthly minimum payments for thirty years.

Debt Settlement or Negotiation is the fifth step in our debt consolidation action plan. If you are falling into serious trouble with your debts and cannot keep up on your minimum monthly payments, you should seriously consider Debt Settlement before looking into bankruptcy.

Debt settlement companies take over all your debts, negotiate with your creditors and work out deals to repay them without having to file bankruptcy. In most cases, you are only required to repay about half of what you originally owed. Although this method of debt consolidation does damage your credit, it is much easier on your credit score than a bankruptcy. For more details on debt settlement, click the article link on the right.

The final step in debt consolidation is bankruptcy. Bankruptcy is usually reserved for the most drastic hardship cases such as loss of a spouse, a serious illness in the family or loss of income. It will tarnish your credit for 7 to 10 years, but if you are unable to pay your obligations it is easy enough to file for bankruptcy and get the debt relief you are entitled to as an American citizen.