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Real Life Debt Consolidation Loan Example

You have a gas card with a balance of $400 at 18%, a Master Card with $6000 at 14%, a VISA with $8000 at 15.9%, and a department store card with $6500 at 22%. You owe a total of $20,900. Your local bank charges 12% interest for equity loans and has an $800 loan origination fee. Your strategy might be to borrow $20,900 with an equity loan from the bank to payoff all your balances, and close out the accounts. Now you’ll still owe $20,900 but at a lower APR of 12%. Also, at the end of the year, you are usually allowed to write-off the interest you paid, effectively making your APR even lower. Most equity loans are 15 year notes, so try to send in extra principal every month to accelerate that payoff time. Make sure your bank allows pre payment and extra principal payments. Online sites usually have lower rates than banks. Now you are paying one check every month to pay off your credit card debt.

But supposing you only have $7500 equity in your house. How can you consolidate all your debt with $7500? You can’t, you’ll have to choose which accounts to payoff. The department store and gas card have the highest APR, so shoot for those. You’ll need to borrow $6900 with your equity loan. There is no reason to borrow more, and you should not either. Sure you would like to buy down some of the interest with your equity, but if you don’t have enough to pay it off and close the account, then there is a very high risk that you’ll just run the balance back up again. Some accounts you can close, then just continue to pay them off, then you’re OK using the remainder of your equity balance to buy down whatever you can on the balance. But we cannot stress the importance enough that you must not let your balances go back up. Consolidation loans and equity loans are potentially dangerous in the wrong hands because you are adding another channel of credit, so use it wisely, and always be fully aware of what you are doing.Types of Debt Relief

There are 2 major tools of debt relief to help you get out of debt. There are debt consolidation loans, and debt consolidation services. They are both described here:

Debt Consolidation Loans: A lender lends you money to payoff your bills. You payoff all your credit cards and other debt, now your payments have all been consolidated into just one monthly payment to the lender, hopefully at a lower average APR than your current bills. Most debt consolidation loans are given in the form of home equity loans. Some are personal loans at extremely high interest rates which we don’t recommend because you are trying to get out of debt, not deeper into debt. Technically, since you are borrowing more money, you’re not really getting out of debt, you just created more debt, but hopefully at a lower APR to pay your bills off faster.

If you have good enough credit and equity in your home, some sites to apply to for home equity loans to reduce your overall interest rate are: LoanWeb, BestRate.com, and Eloan.

Debt Consolidation Services or Debt Reduction Services:

Most reduced interest rate consolidation programs get you out of debt in 48 months. These debt management plans help you get out of debt, and are usually for people who need debt help. If you don’t have a home with equity or your credit rating is not good enough for a consolidation loan, a good alternative is called a debt consolidation plan. You can think of consolidation plans as a “bill paying service” that has the influence to work with your creditors to reduce or eliminate your interest and late fees, and agrees to send them your payment every month. You in turn pay the “bill paying service” a monthly payment which they use to pay off your debts to each creditor, plus a service fee, and maybe some interest if they could not get all of it removed. This should hopefully cost much less than your total payments before, since most credit cards will drop the interest rate from 21% to 0. This is what allows you to rapidly pay off the debt. If you’re in bad debt, it’s the interest that’s killing you in addition to the principle that is owed. You’ll be debt free in good time.

Debt consolidation services to try

Two better known debt consolidation services are iDebtAssistance and DebtSaviors debt consolidation service. The iDebtAssistance Reduced Interest Program non-profit consumer credit counseling service collects from you, and pays your creditors through agreements to either eliminate or reduce your interest rate. By reducing your interest rate, you will drastically cut down your pay off time, resulting in huge savings in interest. You get debt counseling as part of their service and an assigned debt counselor helps you manage your debt. For tips and scams to void with debt consolidation, read All About Debt Consolidation & debt consolidation loans.



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payday loans,cash advances,payday advance,cash in advance,payday cash advance


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