Ideally, debt consolidation is a debt relief solution where you combine all you debts into one and repay it with a lower interest-rate consolidation loan or balance transfer to a zero-percent  credit card or lines of credit so that you pay less in total payment while ease you in managing your debt repayment. But, thing does not work perfectly all the time, based on some survey’s results, 70 percent of Americans who consolidate their multiple debts into a consolidation loan will end up with the same (if not higher) debt load within 2 years. What makes it happen? Debt consolidation should be a solution for debt relief, but why turns out differently that increases your debt load?

Here are potential problems of debt consolidation:

1. Debt Consolidation Seems To Cure Your Debt Issue

Once you consolidate your multiple debts into a new consolidation loan, it seems that you have paid off your debts. The new loan could be a fresh start which does not incur debt pressure on you. You feel relief after debt consolidation until you forget that your debt is actually not cleared but only being transferred to a new loan. With a relief, you may lose control on your spending and causes more debts that worsen your debt situation than before the debt consolidation.

2. Your Credit Cards Are Free To Use Again

With a debt consolidation, all your credit card debts will be paid off with the consolidation loan, making them back to the maximum limit for you to use. If you carry those credit cards when you go for shopping, chances that you may charge it again due to impulse buying behaviors and add new debt before you pay off your consolidation loan.

3. You May Consolidated To A High Interest Rate Loan

Many consolidation loans have a very low interest rate to attract consumers to sign up with the loan, but in actual fact, their interest rate may be higher than your current interest rate after the ending of promotion period such as 3 or 6 months. You may get trapped and make your debt worsen if you don’t read the terms and conditions of debt consolidation plan carefully before sign up with the plan.

4. Debt Consolidation Against Your House Can Backfire

Home equity lines or loans often are touted as easy and quick way to get out of debt. But, borrowing against your home can backfire because you could lose it if you default the loan. You may face financial hardships along the loan repayment period that cause you have difficulties to repay the loan and may default it finally. If the loan is secured with your home, you could lose it.

Summary

Debt consolidation should be a way to help you relief your debt problem, but it may turns out to be in opposite direction to worsen your debt if it is not done wisely.

There are basically 2 options to do debt consolidation, either you do it by yourself or you approach a professional from a debt consolidation agency to help you. If you do the debt consolidation by yourself, you may need to find a low interest-rate loan or pledge your home for a low interest rate mortgage or other assets to get a low interest-rate secured loan to payoff your existing debts. Then, you just focus on paying the loan until it is being paid off.

If you choose to go through a debt consolidation program offered by a debt consolidation company, you will be set up to make one payment each month through the company to your creditors. Usually a trained representative or counselor from the company will discuss your situation and assess your financial needs, asking for details of your current outstanding debts, and monthly income. This will help you find out the monthly payments you can comfortably make. They may offer you a consolidation loan to pay off the debts where you will make repayments to them, or they may offer you a Payment Plan where they negotiate with your current lenders for lower interest rates. In a Payment Plan you will make monthly payments to the company, and they will make distribute this between your creditors.

Who Should Consider Debt Consolidation?

Debt consolidation option may not fit for everyone; it will be a good option if your debt situation meets one or more conditions below:

• If you are finding it difficult to keep track of multiple debts;
• If you are defaulting on payments;
• If your credit rating is going down;
• If you foresee a difficult debt situation;
• If you are close to filing for bankruptcy;

During the process of debt consolidation, your credit card accounts will be closed to avoid adding new debt into your existing debt. You credit score will also temporary being affected until you pay off your debt and you need to rebuild your credit after that, but it can be a good option to work out of debt. The question is whether debt consolidation is the best option for you.

1. Detail out all your debts

First, look at all your secured debts such as mortgage and car loan. How much are the repayment for each month? What are the interest rates?

Then, list down all the fixed expenses such as power, phone, insurance, food, etc. What are the total costs for these expenses?

Follow by examining your credit card debts. Take out all your credit card statement and write down the amount you owe for each card and their interest rate.

Finally, write down all your other expandable; these are your optional expenses such as entertainment, gym, membership, dinners at restaurant and other impulsive purchase.

2. Eliminate the unnecessary expenses

Now you should have a better idea on where your money goes; Make a diet plan on your cash; In your Cash Diet Plan, list down all the your savings from the elimination of the optional expenses. You will be surprise that how much money you can save by carefully control your expenses. The money you saved can be used to pay down your debts.

3. Get your family involve and work as a team

Don’t do it alone because under such as stress condition, you may out of control and may not think and plan in clear mind; get your family together and let them know your financial problem and have them to work together to control the household spending and eliminate the unnecessary expenses.

4. Cash out with your assets

If you have equity, you are in a better situation because you could refinance or get a secured loan for pay off your debts. If you are looking for bankruptcy as your debt relief options, your may not have any equity in hand already. But equity is not the only asset; many people tend to forget that things that have cash value, but not sentimental value. Think antiques, old clothes or collectibles.

List down all the assets you own which your can sell and cash out. Check the closets, garage and storage locker, she says, “and find out what you can live without”. Then, cash them out through garage sales, eBay or consignment shops. Use the money to pay down your debts as much as possible.

5. Go for consumer counseling service

Arrange an appointment with a credit counseling agency and let the counselor to understand your finance situation and draft a budget for you. Review the debt management plan proposed to you before your sign to enroll into the plan. You may get a few plans from other credit counseling agencies for comparison. Choose the one which best suit your current financial needs. Although a debt-management plan can have a negative impact on your credit, it’s better than bankruptcy.

6. Get A second or part time job

Utilize your out-of-work time on second or part time job. Although you may not earn much in your part time job, a little money coming in can keep a bad financial situation from getting worse.

Summary

Bankruptcy may be your easy way out from debts but the consequences may follow you for 7 to 10 years. Always look for other alternative before choose for this dramatic options.

Create Your Budgeting Plan

Use simple household budgeting tips to get out of debt and get your finances under control. Estimate your housing costs, utilities, food, clothing, transportation and vehicle costs, medical and/or family expenses, entertainment and online services, credit card payments and debt priorities, and lastly, other expenses. In your budgeting plan, allocate a portion of your money under safety net account. The money in your safety net account can only be used on emergencies, to recover for unforeseen expenses, for income lost protection and for myriad of other financial busters.

Track Your Spending

After you have allocated your money, apply all extra funds to pay ahead on your debts. In using your money toward debt reduction instead of treating yourself to another fancy dinner or extra pair of shoes, you can watch your debt dissolve quicker than you might imagine.

Once you have set up your budget plan, track you spending to know where your money is actual going and whether it is within your budget. Keep a record of all money spent, whether it is by cash, check, credit card, etc. Once you know where your extra money is going, and oftentimes, realize how you can save hundreds of dollars that can apply directly to your debts and make huge strides to reducing your debt away.

Monitor & Review Your Budget Plan

Budgeting is a process of create a living plan and managing your money to meet your short and long-term goals. Your budget plan should be flexible and being review from time to time and make the necessary change in line with your current needs and circumstances. A static plan that never changes could doom you to failure right at the beginning.

Online Resources

There are tons of budgeting tips and tools which you can find from internet. From budget calculators and worksheets, to detailed software programs, research your options online for the one that best suits your needs. Use these extra information and help on your budgeting process.

Happy Budgeting!

Creating a budget doesn’t have to be a painful restricting process, what you need to do it to make it a habit to know whether your money is going; and by knowing the flow of your money, you have a better control on your money and eliminate unnecessary expenses and the saved money can by dump debt accounts to reduce your debts and get rid of it one day. You may not create a perfect budget plan at your starting stage, continue to review and make necessary changes to in line with your needs and financial capability and the most important is follow your budget plan to make it successfully relief you from debts.

Bankruptcy has many undesirable consequences that will follow you for many years, it will remain on your credit report for 10 years; almost no lender will even consider you as a borrower for at least 2 years. Debt consolidation will always be your better option than bankruptcy.

Get Help From A Debt Consolidation Agency

There are many prestige debt consolidation agencies out there that can assist you to reduce your debt significantly and help you avoid the consequences of bankruptcy. When you contact a debt consolidation agency you’ll be assigned an agent with a wide experience in negotiating with creditors.

The agent will meet you to discuss and analyze you case. He will ask you questions regarding your assets, your income, your debt, your job, your expenses, etc. You will probably be required to provide documentation regarding these subjects too.

After understanding your situation, he will propose a debt consolidation programs which meet your debt situations and repayment ability. Then, he will arrange a meeting with your creditors and negotiate with them new repayment programs.

The people from debt consolidation agencies has a wide experience in negotiation with your creditor and can help you to reduce the amount of money pay for interest and can help you to get an extension on you loan period. Sometimes by means of debt consolidation people can get a reduction on your debt of up to 65%.

Debt Repayment

Once the debt consolidation people get your creditors to approve for the new repayment programs, you will need to start repaying your debt. The repayment options may depend on the negotiation outcome between the debt consolidation agency and your creditors. You may be asked to apply for a consolidation loan and once this consolidation loan get approved, this single loan will be using to pay for your debts and you just need to make your repayment on this single loan.

However, if you didn’t apply for a consolidation loan, sometimes you may also get single repay schema from the debt consolidation agency. Many debt consolidation agencies do provide repayment collection service to their clients and distribute them to the creditors. Hence, you just need to make a single repayment to the debt consolidation agencies and the agency will take care of repaying all your debts.

Conclusion

If you are overwhelming with your unbearable debt, you may think of declaring a bankruptcy is your only solution; but this always not the case, there should be other alternatives to repay your debts which you might overlook. Consult and review the propose solutions from debt consolidation agencies, they may help you to avoid bankruptcy with a debt consolidation as your alternative option.

Let consider some of the scenarios in which it’s wise to refinance your house:

Scenario 1: You current mortgage loan rate is high in relative to market rates

If you are currently holding a mortgage loan which has interest rate significantly higher than the rates offer in the market. And after calculating all the refinance cost and you are seeing a “Saving” in loan repayment. Then, refinancing your house would be your wise decision.

Scenario 2: Refinance from adjustable rate mortgage to a fixed mortgage

You currently hold on adjustable rate mortgage and you have recently discovered that your long term income prospects aren’t looking as rosy as they once were. And the mortgage interest rate has very high chances to be increased in near future. You do not want to your financial future to be affected with these unforeseen changes which may causes a spike increase in your loan repayment. Therefore, you can refinance to a fixed mortgage loan so that you can budget more effectively on your reduced income stream.

Scenario 3: To shorter your mortgage loan term

Your financial situation is getting better and you may want to build equity as fast as possible in your house so that you can fully own it with full loan settlement. Hence, if you refinance to a shorter mortgage loan term, you can create this equity faster.

But, you should consider it carefully with you financial ability with the new loan term. If you are going to take on higher monthly payments, its savvy to work with a financial planner to see how these increased monthly costs may impact your investment portfolio and general quality of living.

Scenario 4: Refinance to avoid spike payment due to balloon mortgage

You might signup a balloon mortgage loan package when you bought your house. As you know that you need to pay for large payment at the time of maturity. The time is coming close but you forecast that your financial situation may not support it when the time come; thus, you may want to refinance your house before the large payments come due and pass the debt down to your future self. By creating this time cushion, you give yourself a window to generate income and asset streams in anticipation of your upcoming refinanced mortgage payments.

Scenario 5: Refinance To finance other big ticket purchases

You can refinance to draw upon the earned equity in your home to finance certain big ticket purchases. Remember that the duration of time you expect to stay in your house will influence your refinancing calculations.

Summary

There are many mortgage tools found in the internet and you can use them to do your refinance calculation before making any decision to refinance your house. Get more information from bank officers on their refinance packages and make a summary on all the potential cost involve before make up your wise decision.