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Debt Consolidation Loan

Sometimes people who have accumulated aloan,  consider  your  alternatives:
significant amount of debt from a range of
creditors will consider obtaining a "debtNegotiate With Your Creditors - Sometimes
consolidation" loan, which will pay off mostyour creditors will offer you a lower
or all of their existing debt, and will ofteninterest rate, or will waive certain fees
result in a smaller monthly payment than theyassociated with your accounts, if you simply
were previously paying. While this can be acall them up and ask. This is most often true
very good idea for some debtors, particularlyof  credit  card  companies.
those who have a lot of high-interest debts,
it isn't always a good deal. Before youDebt Management - You may be better served by
consider debt consolidation, you shouldutilizing a debt management service. With a
closely examine the proposal and make sure itdebt management plan, you deposit an amount
is  right  for  you.of money each month with a service which pays
your bills for you. Sometimes creditors will
What  Is  Debt  Consolidationwork with your debt management service to
offer reduced interest rates or waive certain
A debt consolidation service provides a loanfees  associated  with  your  account.
which pays off some or all of your existing
debt, and replaces it with a single loan withUsing a Traditional Lender - You may also be
a single payment. The promise is to replacebetter served by using a traditional lender,
various high interest loans, such as creditas  opposed to a debt consolidation service.
card debt, with a single loan with a lower
total  monthly  payment.Unsecured Loans - If your credit is
relatively good and you are employed, you may
A related type of service is a debtbe able to obtain an unsecured "personal"
management service, which does not provide aloan which you can use to pay off some of
consolidation loan, but instead pays youryour higher interest debt, such as your
various  debts  for  you.credit  card  debt.
Is  Debt  Consolidation  Right  For  You?Secured Loans - As many debt consolidation
services will use your home as collateral,
It may seem at first blush that there is noyou may well be best served by refinancing
downside to debt consolidation - you end upyour home or obtaining a home equity loan,
with a lower monthly payment and have moreand using the proceeds to pay off your debts.
cash on hand at the end of each month, while
your debts are still being paid off. However,
depending upon how the consolidation loan isBankruptcy - There is a possibility that your
structured, you may end up paying a lot morebest option is to declare bankruptcy. If all
interest on your consolidated loan, andconsolidation will do is forestall an
taking a great deal more time to pay off yourinevitable bankruptcy, consider whether you
debt, than if you keep paying your presentwill be better served by proceeding directly
individual  debts.to  bankruptcy.
Additionally, there is a chance thatBuy  Only  What  You  Need
obtaining a debt consolidation loan will hurt
your credit. Depending upon the scoring used,Some services promise not only to consolidate
obtaining a new line of credit and paying offyour debt, but also to provide you with
existing loans can result in your beinginsurance and perhaps even investments, while
classified  as  a  greater  credit  risk.at the same time lowering (or at least not
raising) your total monthly payment. You
For people who are able, the best way toshould  be  wary  of  this  type  of service.
resolve outstanding debt is often to pay more
each month to service their debt - focusingFirst, the odds are that if you were in a
on paying down the principal of the highestgood position to make additional investments,
interest debts with non-deductible interestyou would not be in the market for a debt
(e.g.,  credit  card  debts).consolidation loan. You will likely be better
served by applying the "insurance" or
Finally, you must ask yourself if you will"investment"  payments  to  your  debt.
demonstrate the fiscal discipline necessary
to benefit from debt reconsolidation. If youSecond, the commissions associated with
obtain a consolidation loan with a lowerinvestments and insurance policies can be
monthly payment, but immediately run up newextremely high. Often the reason these
credit card debts, you will almost certainlyservices are trying to sell you additional
end up in a worse position than you were inproducts is so that the salesman can pocket
prior to consolidating your debts. You canan  additional,  substantial  commission.
even end up in a cycle of obtaining
"consolidation" loans, with the commissions,The best approach for most people who choose
fees, and interest rates accumulating to putto consolidate their debt will be to obtain
you  deeper  and  deeper  into  debt.the best possible debt consolidation loan
they can find, and to examine their other
Big  Commissionsfinancial needs only after they have resolved
their prior debt situation. Also, most people
It is not unusual for a debt consolidator towill benefit from using a professional
obtain a commission of 10% or more on yourfinancial planner, as opposed to buying
new loan. It is possible also that theinsurance or mutual funds through a "debt
consolidator will be able to obtain a rebateconsolidation" salesperson with little actual
from your lenders when the new loan isknowledge of investment, and who offers a
applied to pay off those debts, resulting inmuch  smaller  range  of  investment options.
an even greater commission. The chance for
significant, easy profits can inspireBeware  of  Multilevel  Schemes
unethical debt consolidators to encourage
people to obtain consolidation loans whichThere are some debt consolidation schemes
are  not  in  their  best financial interest.that are sold through multi-level marketing
schemes. While there may be a certain comfort
Trading  Early  Payoff  for  Low  Paymentslevel in purchasing a financial plan from a
friend, co-worker, or relative, consider
In many cases, those seeking debtthis: What are the odds that this person
consolidation are exploring that optiontruly is an investment professional? Most
because they are already experiencingmulti-level schemes offer very limited
difficulty making their payments. If so, theoptions to the customer, and all require very
chances are that they will not qualify for ahigh commissions for the salesperson and the
low interest rate. If they obtain a highersalesperson's "upstream" - those who
interest consolidation loan, any reduction insponsored the salesperson into the
their monthly payments will likely resultorganization.
from the fact that the bulk of each payment
is for interest, with little going to theYou should treat a multi-level program like
principal balance of the loan. As a result,any other option - see how it stacks up
although their monthly payment is reduced,against your alternatives, then select the
they will make very slow progress towardone that is in your financial best interest.
paying off the loan, and they will likely payBut don't be taken in by the fact that you
a lot more interest over the life of thelike the person who is selling the program,
loan.or the suggestion that you will be doing them
a favor - many of these programs offer the
Exploring  Alternatives"potential for six figure income", and your
friend intends to profit handsomely by
Before you sign on for a "debt consolidation"convincing you to sign up for their service.



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