Eliminate Your Credit Card Debt, But How? - Debt-Relief

Eliminate Your Credit Card Debt, But How?

Can a debt consolidation loan eliminate your credit card debt? A
consolidation loan might (or might not) be the key. There are several
things you must consider when making the choice to consolidate debt using
a debt consolidation loan.

First, is a debt consolidation loan your best choice to eliminate or
substantially reduce your debt? There are other options available to you,
including credit counseling and bankruptcy. Obviously bankruptcy is a last
resort. You must examine several factors when making your decision on
which debt reduction / elimination strategy to use. You need to get
information on debt consolidation to make the correct decision.

?How much outstanding debt do you have?

?What is the interest rate of your current debt? Many credit cards have
interest rates of 14% - 22%, depending upon your credit rating and payment
history. Obviously, the higher your current average interest rate, the
better off you will be if you consolidate your debt with a consolidation
loan at a much lower rate.

?How much of your outstanding debt is unsecured? Unsecured debt has no
collateral against it. Credit cards, student loans, store charge cards and
medical bills are examples of unsecured debt. If you have over $7,500 in
unsecured debt there a multitude of lenders that you can look at. Student
loans fall into a different classification from other types of unsecured
debt. In the United States, most are backed by the federal government.
Usually you will have to use a secured debt consolidation loan to pay off
your unsecured loans. You may also be able to refinance your secured
debts, but you usually cannot consolidate secured debts.

?Do you own a home or other substantial assets to use as collateral for a
debt consolidation loan? If you own a home or other real estate, how much
equity do you have in it?

?What type of interest rate is available to you for a consolidation loan?
The interest rate you receive on your loan is affected by a multitude of
factors including the prime rate. For student loans, the borrower interest
rate on consolidation loans is currently calculated as the weighted
average of the interest rates in effect on the loans being consolidated,
rounded up to the nearest one-eighth of 1 percent. They are capped at 8.25
percent.

?How is your credit rating? Someone with a very good credit score has
options open to them that those with lesser credit ratings do not.

Keep in mind that if you have more than 20% equity in your home, you are
usually not required to carry private mortgage insurance (PMI). If you
have reached the 20% equity stage through either paying down the
principal, asset appreciation, or both, you can probably drop PMI and
lower your payment. On the flip side, if you are not paying PMI and you
take out a consolidation or other home equity loan, you may put yourself
back under the 20% equity threshold. This would require you to get a new
PMI policy. Factor this in when making your cost / benefit analysis.

If you are constantly slipping backward and your cash flow is poor, you
can improve things with a debt consolidation loan. Be careful and weigh
your options carefully. Take into account the tax benefits you may receive
by using a home equity loan to consolidate your debt. This benefit will
vary depending upon your tax rate. You can get many free quotes for debt
consolidation loans. There are several places that have multiple lenders
compete for your business. Talk to several lenders to see which will give
you the most favorable terms. You can substantially lower your monthly
payment and significantly improve your cash flow situation with a debt
consolidation loan. Just make sure this is the right choice for your needs.

Steve writes about a multitude of topics from home theater and automation
to business and finance. See his website, The Debt and Loan Consolidation
Guide for more information.

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