Debt Consolidation

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I recently purchased a home (3 months ago) and financed 100% of the home. At this point I do not have an equity in the home. I am currently looking for a way to consolidate some of my debt to lower my rate, lower my payment, and ultimately pay off the debt sooner. I have 1 car loan, 1 personal loan, and 5 credit/store cards that I would like to consolidate totaling about $16,600. My FICO score is currently 686, and I am on time every month with all of my bills. I have paid all bills on time (most of the time more than the minimum) for more than 3 years straight. My problem is that my Debt to Income ratio is probably too high for most lenders to consider me for a consolidation loan. What can I do to consolidate ALL of my debt? Any feedback would be appreciated.

Best Answer

Debt consolidation loans are usually a rip-off, extending loans way out and you end up paying a lot more in interest, plus the loan origination fees increase the amount owed. Instead: Transfer credit card debt to lower interest rate cards, some will give you 0% for a transfer. Do this before deciding which one has the highest interest rate to pay off first. Pay at least double the minimum monthly payment on the credit cards and car loan. This extra will go entirely towards the principal, and reduce the debt a lot faster. Pay off the highest interest rate credit card (or loan) first. It is also a good idea to pay extra principal on your house, to reduce the interest and increase the equity. Sell the car and get a used one that costs less if you have to. Destroy your credit cards and don't use them again, instead get a credit/debit card that pays interest and cash back for any charges. So you make money when using it instead of pay money.

Here's my situation. I have about $10,000 in credit card debt, $80,000 mortgage on house, $17,000 auto loan. Not too bad except all my credit cards are at the default rate due to late payment or "early" payment. I'm wondering if I should get a consolidation loan for just my credit card debt. Where should I look for this type of loan and would it be wise to get a loan for this? Would I be better off getting a debt loan for all my debts including house and cars? I'm just looking to get these paid off asap cuz the rates are a killer. Any help would be greatly appreciated. Also will these debt loans hurt my credit? I have a 650 score now. My house is appraised at $89,000. Only been paying on it a year now. About 2% equity if that.

Best Answer

They will negotiate lower payments with your creditors which may relieve some monthly pain but it will trash your credit score because the lower payments are a violation of the creditors original terms with you. I write a blog on the subject of credit management, mortgages, real estate trends, etc. Check it out for more information that may be helpful.

is debt consolidation really works? i have 25k debts and decided call consolidation agency. is anyone out there used those agency before please give me advices. thank you.

Best Answer

Myth: Debt consolidation saves interest, and you have one smaller payment. Truth: Debt consolidation is dangerous because you treat only the symptom. Debt consolidation is nothing more than a "con" because you think you've done something about the debt problem. The debt is still there, as are the habits that caused it - you just moved it! You can't borrow your way out of debt. You can't get out of a hole by digging out the bottom. True debt help is not quick or easy. Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our certified counselors will not recommend debt consolidation for a client. Why? Because debt consolidation doesn't work. Debt Consolidation Statistics A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn't have a game plan to either pay cash or not buy at all. He also hasn't saved for "unexpected events" which will also become debt. Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, BUT if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business. Debt Consolidation Example For example, let's say you have $30,000 in unsecured debt, including a 2-year loan for $10,000 at 12%, and a 4-year loan for $20,000 at 10%. Your monthly payment on the $10,000 loan is $517 and $583 on the $20,000 loan, for a total payment of $1,100 per month. The debt consolidation company tells you they have been able to lower your payment to $640 per month and your interest rate to 9% by negotiating with your creditors and rolling the loans together into one. Sounds great doesn't it? Who wouldn't want to pay $460 less per month in payments? But they don't tell you that it will now take you 6 years to pay off the loan. This may not sound that bad to you at first unless you realize how much more you will actually pay in additional payments. You will now pay $46,080 to pay off the new loan vs. $40,392 for the original loans, even with the lower interest rate of 9%. This means you paid $5,688 more for the "lower payment". Not such a good deal after all. This example shows you why they are in the business - becuase they make money off of you

Can someone explain how debt consolidation work? If your in debt and you pay someone else at a lower rate, then why doesnt everyone go this route? And im thinking about going this route, how do i do it? Who do i contact

Best Answer

You don't need anyone to do it for you. All they do is negotiate your debts for you and collect a fee. You can do it yourself! Call all of them and work out a payment plan and try to get your interest lowered or stopped. Then, make the minimum payments on every one of them. On the lowest dollar value, put all your extra effort toward paying it off. Once it is paid off, then roll that extra money to the next largest balance. Continue this snowball until all your debts are paid off. You proabbly need to cut your expenses back to the bare minimum. Get rid of cable, cell phones, internet, etc. Lower your electric bill, gas bill, water bill, etc. Don't eat at a restaurant until your debts are under control. Try to increase your income by getting a second job. If you have a car with payments, get rid of it, and buy a good dependable used car for CASH. Go to the library and get "The Total Money Makeover". Read it and follwo it carefully. Go check out Dave's website as well. www.daveramsey.com