Alternatives for consolidating debt rather than using the equity in your home

by cccozarks

Part 2

Consolidation Loan

This is an unsecured loan, which means that the interest rates will be higher than a home equity loan. The rates will probably be lower than all of your credit cards but carefully consider other options if the fees are high. Going this route may not save you much money after the fees associated with the loan. Just like the home equity loan, close out all of the accounts you consolidate. Make sure the lender is reputable and all the fees and finance charges are presented to you before you agree.

Credit Counseling Services

Credit counseling agencies will negotiate with your creditors to reduce interest rates and put together a Debt Management Plan. You will pay one monthly payment to the agency and they will disperse your money to all of your creditors within the plan. Before entering into any agreement know what your responsibilities are. Choose an agency that charges little or no fees. If they ask you for money upfront, you may want to look elsewhere. A lot of the time that “fee” does not go towards your debt at all. There are For Profit Credit Counseling Agencies and Non Profit Credit Counseling agencies. Choose an agency that is reputable, accredited, and have trained counselors. When you go through these agencies, you may be asked to close your credit accounts that will be put on the plan. That could cause some concern with lenders if you want to apply for any new credit within this time frame because some creditors state on your credit report you are going through a Credit Counseling Agency. A lender will notice that note and may want you to wait until you are completed with the program before they offer you new credit. These agencies also help you with a workable budget and offer services to rebuild your credit. By the time you have completed the Debt Management Plan, you will have a better understanding of money management and credit.

Self Administered Plan

Some individuals try to tackle paying off their creditors with their own, self administered, plan. This can be intimidating and requires discipline. First, call all of your creditors and ask for an interest rate reduction. They may or may not reduce them but it is worth a try. Then figure out a good plan for you. Some financial advisors say to pay off the credit card with the highest interest rate first because it will save you the most money, which it will. The problem with that plan is it could discourage you if the debt you are tackling first is a very high amount. You may feel it isn’t getting paid like you thought and you could give up.

Another method is to pay extra on the credit card with the smaller amount of debt, while still making minimum payments on the others. When you get that credit card paid off, you will have a sense of accomplishment. Then concentrate on one credit card at a time, putting extra money towards it and repeat until you are debt free. Again, do not ignore the other credit cards; make sure you at least make the minimum payments.

Just remember paying down debt takes time and commitment but it will be rewarding once you have finished whatever plan you decided to use.

Written by Beth Mincks, Consumer Credit Counseling of the Ozarks

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