Top Four Strategies for Savvy Debt Consolidation

February 5, 2014

Debt Management

Debt Consolidations

Personal debt is reaching its lowest numbers since the late nineties, proving that much of the world is at last seeing the back of the financial crisis. Borrowing has increased and outstanding bonds are diminishing. The public is becoming savvier every day, learning to shop around for interest rates, manage their debt smartly and make their budgets stretch further. A third of personal debtors have used debt consolidation as part of their strategy but there are as many smart ways of coping with this technique as there are damaging ones.

Overcoming the Interest Problem

While consumers happily pay down their debts, their interest continues to escalate, adding years to their repayment plan and dollars to their principal amounts. Interest is one of the most challenging facets to demolishing debt. In today’s positive credit market, favorable interest rates are not hard to come by.

Balance transfer competition has led to shrinking fees, leaving debtors with plenty to work with in terms of successful consolidation. The first priority is, of course, to reduce interest rates, but credit scores need to be considered. Those who have good repayment histories with major institutions may choose to consolidate into those accounts in order to hold onto the score they provide. Wiping a credit card from your report wipes away its positive past, so throwing the proverbial baby out with the bathwater is not recommended unless it affects your ability to repay your total debt.

Abusing Consolidation

The most challenging temptation to overcome when using consolidation is to exploit it as a way to borrow more money, according to a report in the Daily Telegraph, a respected British daily newspaper. The same is true whether you’re in the UK, the USA or any other location. Consolidation is only effective if it is not abused. Ideally, those being stifled by their debt are best off when they refuse further credit until their entire principal amount has been paid off. Credit cards, store accounts and overdrafts need to be cast aside, which is possible by the creation of savings buffer of 10 percent of your income for emergency use.

Shopping for a New Account

The vehicle chosen for consolidation is an imperative choice that can be decided on with the help of National Debt Relief reviews. Clearly, it needs to charge lower fees and interest than the sum fees and interest on your existing accounts charge. In certain cases, if it is possible to pay off your principal amount in good time, a credit card with an interest-free first year is the ideal solution.

Those who need more time and malleability can fill their needs by consolidating under a personal loan, a solution that has gained popularity in the last year. One in three personal loans in 2013 was taken out as a consolidation tactic.

Home Equity Loans

When credit is right and the housing market is declining, home equity loans can be difficult to come by. Those who lack the capacity or discipline to take care of the attached monthly payments risk losing their properties, another significant danger. At the same time, this method can come with a small 5 percent interest rate after tax. It can also positively impact credit scores. For this reason, only the most disciplined debtors with the most accurate repayment plans should choose this option.

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Debt Consolidation