If you have racked up a ton of debt and you can’t seem to get out of it, don’t worry. The world has not ended yet. If you use your head, you may find a couple of options that will get you out of this financial mess you created for yourself.
The first thing that comes to mind when speaking about debt is consolidation. But you need to wonder if it suits you or not, let us explain that!
Should You Consider Debt Consolidation or Not
There are two ways to work consolidate debt, both of these methods conjoin your numerous debts into one big one.
- You obtain a 0% interest as you transfer every single debt into a card, and pay the balance as a monthly bill
- Or you can get a fixed rate personal loan and use the money from this loan to pay off your entire debt
If you don’t like these options, you can also take a Home equity loan. But this puts you at risk of losing a big investment of your life. Considering what we said above, what is the right time to get a Debt consolidation?
These debt plans are designed to help you out. But to make sure things don’t go south, you better assure they meet the following criteria:
- Debt doesn’t increase 50% of income
- Credit is good to get a 0% credit card, or low-interest debt consolidation loan
- Cash flow covers payment towards debt
- The potential to change spending habits
Debt Consolidation only works if you have a plan that won’t run you into debt again. You have to reassess your chance, and add all debt to it. Just don’t add your mortgage, car or student loan.
Once done, you have to compare the total loan with your annual income. If this is half than the yearly income, and you believe you can easily pay it off in five years, then you won’t have trouble with consolidation debt.
If your debt is small and easily payable within six months, then you don’t need to bother and getting into this mess. You should do it yourself,or you will end up in a debt snowball. Worse, if your debt is high, and you can’t pay it back in 5 years, then you better get a debt relief instead of debt consolidation.
Many debt settlement companies will negotiate with your creditors and take some load off. However, they will charge you for this, but you get a better time window. This lets you pay back the money easily.
Doing this can have adverse effects on your credit,but it’s better than going bankrupt if you can’t payback your debt for some reason. Although some people argue that filing for bankruptcy instead of debt relief is better, but doing the first will kill your credit.
You can try and consult with debt management agencies to learn more about your options. They specialize in credit counseling and will guide you, for a small fee of course.