Saturday, November 23, 2013
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Your best debt consolidation moves
Your best debt consolidation moves
If you own a home and have some equity in it, you have a couple of options that are relatively low in cost. These are pretty straightforward:
Take out a home equity loan. A home equity loan has the advantage of carrying a fairly low interest rate, currently in the high single digits, and what interest you do pay is tax-deductible, Kays points out. Most fixed-rate loans carry a 15-year term and require that borrowers pay an origination fee of $75 to several hundred dollars, plus the cost of an appraisal and title insurance.
Do a "cash-out" refinancing. Another option for those with home equity is refinancing your property for greater than the amount you owe and using the extra cash to pay off debt. You get very low interest rates this way, but youre stretching payments out over 15 or 30 years. The total interest cost over three decades can wind up being pretty huge, so think of this as a one-time-only (if ever) option.
Refinance your car. "Most people dont think of it, but it is a secured loan and you can borrow against it," Kays says. The danger there is that you may run out of car before you run out of debt. Its tough to buy a new car when you owe more than its worth.
Get a personal loan. If you have reasonably undamaged credit, you may qualify for an unsecured loan. Credit unions (see link to the left) typically offer lower rates than banks, but even there you can expect a rate of 11% or more. Still, that may be a whole lot less than the 20%-plus youre now paying to the credit-card company.
Negotiate better terms. You can do this for yourself easily. Just call your credit-card company and ask them to do it (many customer service people are authorized to reduce rates right there on the phone).
Another alternative. Or you can get help from an organization like National Foundation for Credit Counseling (see link to left). NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. You can even consult with them over the phone, like I did (see below).
Like other debt consolidators, NFCC gets paid by creditors, so its in their best interest to work out a repayment plan rather than advise you to declare bankruptcy. Not that you want to be advised to declare bankruptcy, but in certain cases it may be your best option.
NFCC makes no outlandish promises beyond the prospect of a saner financial life, and the possibility of qualifying for their low-rate mortgage program. They also offer low-cost financial planning -- a resource Im definitely going to look into for a future column. Once I have some finances again, I will need someone to tell me what to do with them!
Take out a home equity loan. A home equity loan has the advantage of carrying a fairly low interest rate, currently in the high single digits, and what interest you do pay is tax-deductible, Kays points out. Most fixed-rate loans carry a 15-year term and require that borrowers pay an origination fee of $75 to several hundred dollars, plus the cost of an appraisal and title insurance.
Do a "cash-out" refinancing. Another option for those with home equity is refinancing your property for greater than the amount you owe and using the extra cash to pay off debt. You get very low interest rates this way, but youre stretching payments out over 15 or 30 years. The total interest cost over three decades can wind up being pretty huge, so think of this as a one-time-only (if ever) option.
Refinance your car. "Most people dont think of it, but it is a secured loan and you can borrow against it," Kays says. The danger there is that you may run out of car before you run out of debt. Its tough to buy a new car when you owe more than its worth.
Get a personal loan. If you have reasonably undamaged credit, you may qualify for an unsecured loan. Credit unions (see link to the left) typically offer lower rates than banks, but even there you can expect a rate of 11% or more. Still, that may be a whole lot less than the 20%-plus youre now paying to the credit-card company.
Negotiate better terms. You can do this for yourself easily. Just call your credit-card company and ask them to do it (many customer service people are authorized to reduce rates right there on the phone).
Another alternative. Or you can get help from an organization like National Foundation for Credit Counseling (see link to left). NFCC has branches throughout the country; they are a non-profit, community organization that provides free and confidential debt management advice to anyone who needs it. You can even consult with them over the phone, like I did (see below).
Like other debt consolidators, NFCC gets paid by creditors, so its in their best interest to work out a repayment plan rather than advise you to declare bankruptcy. Not that you want to be advised to declare bankruptcy, but in certain cases it may be your best option.
NFCC makes no outlandish promises beyond the prospect of a saner financial life, and the possibility of qualifying for their low-rate mortgage program. They also offer low-cost financial planning -- a resource Im definitely going to look into for a future column. Once I have some finances again, I will need someone to tell me what to do with them!