You probably didn’t wake up one morning to discover you’re head over heels in debt. It takes times to build up so much debt you feel like you’re drowning in it.
How did I get here?
Nobody just sits down and decides to run up a huge amount of debt. It happens either because we’ve purchased a lot of things we can’t really afford or because of something over which we had no control. Maybe you lost your job or had terrible hospital and medical bills. Some homeowners find themselves in debt because they suddenly discover they need a new roof or their house starts to crack in half due to bad soil.
Regardless of whether you got heavily in debt because of mistakes you made or because of unforeseen problems or medical bills, this can have an awful effect on your life. You may find it tough to make just the minimum payments on you credit cards, let alone pay down that debt. Or worse yet, you may have debt collection agencies calling every day and threatening to have your wages garnisheed.
What to do, what to do?
You’ve probably seen those ads for debt consolidation companies that promise to help you pay off that debt and get back on your feet. The way debt consolidation works is that you must take out what’s called a secured loan to pay off a number of unsecured (i.e., credit card) loans. If you don’t know what a secured loan is, it’s secured by an asset, which is most often your home. Because the debt consolidation loan is “collateralized,” it often has a lower rate than what you may be paying on those credit cards. However, and here’s the big however, if you fail to pay that debt consolidation loan, you can be forced to sell your house to pay it back.
The downside of debt consolidation
The biggest problem with a debt consolidation loan is what we mentioned previously – you could end up losing your home. A second problem is that while you’re discharging debt (those unsecured credit card loans), you taking on new debt and not getting out of debt. This means you will have to do a much better job of managing your finances or you could end up adding new credit card debt on top of the debt consolidation loan and windup in even worse shape than before you took out the new loan.
It’s also important to understand that you aren’t reducing your debt; you’re just changing it. You will have a lower monthly payment but it will probably take you much longer to pay off the loan. For example, if you were to get a debt consolidation loan for $10,000 and have a monthly payment of $132 a month, it might take you as long as 10 years to pay it off.
Don’t be scammed
You also have to be careful about getting scammed by debt consolidation operators. The Internet plays home to some very unscrupulous companies. If you do decide to try debt consolidation, be sure to check out the debt consolidation company and the loan before you sign anything. You need to be sure you understand all the terms and conditions, all the fees you will be required to pay and your interest rate. There are debt consolidation companies that charge as much as $5,000 to set up a loan, which could just put you deeper into debt.
Many people who have been seriously in debt have found credit relief through what’s called debt settlement. This is where a third party company negotiates with your creditors to reduce the amount you owe and get you lower monthly payments. In fact, debt settlement companies such as National Debt Relief (www.nationaldebtrelief.com) have succeeded in reducing their customers debt by as much as 50%. Can’t you just imagine how much better your life would be if you could have your debt cut in half and have much smaller monthly payments?