|
Below, you'll find extensive information
on leading direct loan student articles and products to help you on your
way to success.
Debt Elimination & Debt Consolidation Can Work Together
By Drew Harris, Thu Dec 8th
Debt elimination has always been my goal. But on this day, whenI received the bill for the sudden replacement of the clutch inmy car, the VISA bill and word that my daughter neededorthodontics for her teeth, how was I ever going to realize mydebt elimination goals? Does that sound familiar? It's totally frustrating. It's veryeasy to log your spending and identify high interest creditcards to pay off, but what happens when there is still moremonth left when the money runs out? In the case of our family, debt elimination was only possiblewhen debt consolidation was achieved by drawing on home equityand refinancing the mortgage.
If we had not gone this route, trying to stay on top of hugedebt payments is a slippery slope that can very quickly becomeserious financial stress. Consider the fact that Americans are declaring bankruptcy atrecord rates. One in every 100 families is affected by abankruptcy. I was on this slope 10 years ago. One of the most insightfulmoments of the process was preparing a written log for thetrustee of all of our spending for the 5 years leading up tobankruptcy. Skip ahead many years later and I am again juggling too manypayments and not enough money. The problem is simple. Raising a family, repairing the house,feeding everyone, takes a lot of surplus money. Even
whenbudgeted for. Sound familiar? Our advisor mapped out a debt elimination plan that includeddebt consolidation by refinancing our home mortgage. The numbers were amazing. With record low interest rates, werolled in $40,000 of consumer debt into our mortgage. Ourmortgage payment stayed virtually the same, and we reducedmonthly cash flow going out the door to cover debt payments by$900 per month. I couldn't believe it. Was that possible? It was and it allowedus to work on our debt elimination over a longer, moremanageable length of time. There are pros and cons of course. The big advantage here isthat you are able to avoid bankruptcy. The danger is that withthe pressure off, you will return to building up debt on yourcredit cards etc. Some points to consider: 1.You reduce the number of physical payments you make per monthfrom many to one (that's good) 2.You might be able to get a reduced interest rate by usingyour house as the collateral (reduced rate: that's good, buthouse as collateral: hmmm) 3.Typically your total monthly outlay will be lower (that'sgood) 4.You only have to deal with a single creditor (that's good) 5.You might get some tax breaks out of the deal (that's good) 6.Your credit cards are cleaned, meaning that your free tospend (not so good) 7.It'll take longer to pay off your debt (not so good) 8.You'll likely paying out more over the life of the loan; eventhough you're making a lower payment, you're paying off the loanover a much longer period of time (not good) 9.You can loose everything if you default on this loan, sinceit's a secured loan (definitely not good) To ensure this plan doesn't stray off course, some helpful ideasmay include closing your credit card accounts once they are paidout. Building a spending plan and tracking money that is coming inand out is a great way to stay on top of the new cash picture.Computer accounting programs that automatically downloadtransactions is extremely helpful. In some cases, it is a great idea to get some help. For somepeople, the problem of overspending is a psychological one. Spending can become a habit that's as difficult to kick asalcohol, drugs or gambling. For our family, the key is not to return to our spending waysafter debt elimination through debt consolidation takes some ofthe pressure off. That will be our focus. About the author:Debt-eliminationsite.com is run by Drew Harris and is aone-stop-shop website for those facing debt issues. Multiplepages of resources, referrals and tools. Expert advice on creditcards, loans and bankruptcy. Financial planning to get out ofdebt. http://www.debt-eliminationsite.com
|
