Repaying what you owe as quickly as possible is often the wish of every debtor. But for some reasons, people can’t seem to settle their debts in time; hence they end up becoming slaves to their lenders. This is a trap that many people with debts are looking to free themselves from by considering the help of loan consolidation companies.
Help is supposed to come in form of gathering all the outstanding credit card loans into one amount with a lower interest rate. This simplifies the repayment process, giving you total control over your finances in relation to discharging your debt obligations.
Therefore, before you approach loan consolidation companies out there, it’s helpful that you familiarize yourself with the following tricks of consolidating your debts. If they works, you will be happy with yourself. If they don’t, you will need to seek the help of loan consolidation companies to tailor-make solutions for your particular case.
4 options to consider before approaching loan consolidation companies
Apply for a peer-to-peer loan
In this lending setup, a borrower will do business with a lending individual without going through the hands of traditional lending institutions. The reason why peer-to-peer lending is attractive is because of low interest rates that come with such loans. You should expect interest rates to be as low as 7% when you have a decent credit rating.
This can save you money in the long run because you will not pay high interest rates on outstanding balance in the future. Keep in mind that the cost of borrowing loans will play into the equation as well. Generally, new loans are charged at 1-5% of the total loan amount borrowed. These loans also tend to come with a fixed repayment period which can be up to 5 years. But this time, the loan must be repaid in full. That way, you know that when the 5th year of your loan is complete, you will have cleared the balance.
Executing a balance transfer
If you happen to be a victim carrying debts on high-interest rate cards, you could save a fair amount of money by transferring the balance to a new card with lower interest rate. Look for cards which offer promotional debt fees of 0%. Such cards can help you conquer your debts faster because you’re not spending unnecessarily to seek help in paying off your debts. However, it’s critical to have a decent credit history in order to get a card with low interest rate.
With these cards, you should expect to pay a fee of 3% on the balance that you’re transferring to the new card. Also, you have to keep in mind that the introductory fee of 0% is something that never lasts forever. Most of them will last in 15 months. So if you can, take advantage of this period to pay off a large chunk of your balance.
Borrowing from home equity
Home equity can be used in consolidating debts (only for those who own homes) as well. But this step is risky, and will only be advised when you have the potential of handling it responsibly so you don’t face a foreclosure. Therefore, if you have the capacity to repay the loan, tapping into your equity and repaying yourself can be a very convenient way of settling your debts.
If considering this option, you will be faced with two choices, the first one being a home equity loan and the second being an equity line of credit. ARP usually incorporates points as well as finance charges while Annual Percentage Rate for line of credit only includes the interest rate of the loan in question.
With a home equity loan, you will receive the full amount of money borrowed upon closing. But with a line of credit, you will receive a checkbook where you will write checks on your equity (up to the amount specified by the line of credit). Home lines of credit tend to operate the same way credit cards work in the sense that interest is charged on the amount withdrawn.
Dipping in your retirement
Be warned that this is the last resort you should ever consider – only in situations when you are in dire straits and you have nowhere else to go. Typically, the process will involve finding out if you can borrow against your pension plan or 401K in low interest rates.
If you borrow against your retirement, you will repay back the loan under favorable terms. But the setback is that you risk jeopardizing your retirement funds. This is generally not recommended by loan consolidation companies that mind your financial welfare.
