Tuesday, 26 August 2014

The Best Way To Consolidate Your Debt – Analyzing Your Financial Situation

Posted at  11:46  |  in  Debt

Often, debt consolidation seems to be the best way to combat your debts by combining all your high interest balances into a single loan and make a single monthly payment till you become debt free. The debt consolidation companies often brag about the healing qualities of this particular debt relief option. While there might not be a single best way to consolidate debt, it is certainly possible to narrow down all the options that you can choose in accordance with your current financial situation. Ultimately, the way you choose to combine your debts should always depend on your present income, affordability and your financial situation.

Taking out a personal loan from the bank

A personal loan is most often the best thing that people have in mind when they think of consolidating their debt. They think that the ideal solution is to take out a low interest loan with low monthly payments that you can use to repay your high rate debt. This can of course be a good strategy only if you find the loan that you need. However, this can be a challenge if your credit isn’t great. Huge debt level, especially cards with balances approaching their credit limits can become an obstacle to qualifying for new loan. The idea is to take out a low interest loan of an amount that is equivalent to the total debt accrued by you and then use the amount to repay your creditors.

When this option is best for you: This option of taking out a debt consolidation loan can only be helpful when you get a loan with a lower rate and with a repayment schedule that will allow you to repay the loan in 3-5 years.

Credit card consolidation

Similar to taking out a personal loan, you can also take out a low rate credit card or 0% balance transfer offer and use it to combine your multiple high interest debts. But watch out for the fees that may be applicable for the transfer. The credit card companies charge fees for balance transfer and you also need to be cautious about the teaser rate. Teaser rates don’t last forever. However, you should choose a card that carries a teaser rate of at least 6 months so that you get enough time to transfer your balance from one card to another. Be wary about the fact that interest rates may shoot up after the completion of the introductory period.

When this option is best for you: This is best for someone who qualifies for a card with a low rate and with a low transfer fee at the same time. If he doesn’t get this much of opportunity, he might end up repaying an amount way more than what he actually owed.

Apart from the above mentioned debt consolidation options, you can also get help of a credit counseling agency. However, this would be a best option for you when you have just started incurring debts and when you’re still not in the red.

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About Author

Jimmy Simond is founder of wallstreetsfinancenews.com he share his immense knowledge of finance in this blog. You can follow him on Google+.

2 comments:

  1. Tips are always helpful n finance...

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  2. Well, I appreciate your post and it is very helpful for the people wishing to consolidate their debts. One can consolidate the debts either by availing a personal loan or a credit card. However, there are pros and cons of both. I agree with you. One should analyze the financial situation before opting any of those options available. Thanks for sharing this useful information with us. For more helpful tips related to personal loans from one of the best licensed money lenders in Singapore, visit http://www.quickcredit.com.sg/loan-services-singapore/personal-loan-in-singapore

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