Thursday, April 13, 2006

Debt Consolidation paying off your debts

Debt Consolidation, paying off your debts

Are you considering a debt consolidation loan? Do you have credit card debt, student loans, or other high interest rate consumer debt that you would like to consolidate in one low monthly payment?

Debt consolidation ideas: First of all a debt consolidation loan sounds like a great idea to most people. Get out of those high credit card interest rates, payoff all of those credit card bills and get them down to one nice low monthly payment. It does sound good in principle, however, it is something that you really should only do once as a correction for a life style that was probably a little out of control. Remember if you cannot pay off you monthly debts you are not living within your means. Anyway, I am not hear to tell you what you already know the important thing is to make a commitment that if you are going to do a debt consolidation loan that you plan to cut up the credit cards, not take on any additionally short term consumer debt and agree to live within your means and establish a family budget that you can live with.

Make a commitment before taking on a debt consolidation loan: Why is this important, if you don't make this commitment you may just end up causing the same problem all over again. Consider this if you are still paying for a vacation and a plasma TV that you bought last year, with a debt consolidation loan you could continue to pay for these items for the next ten years. The memory of the vacation will be long gone in ten years and chances are you might not even have the plasma TV in ten years. So the questions is how long did you really want to pay for these items.

Consider the rule of 72 to figure out how much your debt costs you: Additionally, you must consider the rule of 72 which is a simple way to calculate the cost of your interest on your credit cards debts or any debt. Basically, the rule of 72 is, take your interest rate and divide it into 72 and that is the number of years it takes for you to double the cost of your debt. So for an easy math example lets say you have a credit card that is at 7.2% interest rate, you and I wish it was that low. Anyway, 7.2% goes into 72 exactly 10 times so if you have a $2000 debt at 7.2% interest and you take 10 years to pay it off you have doubled the cost of the item. That is you paid $4000 for the item. If the interest rate is 14.4% then it only takes 5 years for the cost of the items to double. Again 14.4% is a pretty low rate, how many cards do you have that are at 18% or 21%. Do you now see why credit card companies love when you run up a debt. They are stealing from you legally. We all have trouble making ends meet and paying for the things we want but do we really want to pay twice for things we only bought or did once? How many dinners are you paying for over time? Remember if you make the minimum monthly payment the credit card companies don't really care how long it takes you to pay of you debt. Based on that opening I really do not recommend a debt consolidation loan however in some cases it makes sense especially if you are going to make the commitment to not run up any more debt.

Debt consolidation tools: Below I have listed several resources on debt consolidation including debt consolidation calculators. Please take some time to use these tools to help you determine your best path forward.

  1. Debt consolidation calculator: MSN has a debt consolidation calculator that allows you to enter in all of you credit card debts and determine when you will be debt free using a debt consolidation loan. It is an easy to use web base tool. MSN debt consolidation calculator
  2. Another alternative to a debt consolidation loan is to enroll yourself in a debt management program. An example would be the services of American Consumer Credit Counseling. Just remember to be careful before you enroll in any debt management program. Ask for references, call the references, call the Better Business Bureau for there opinion on the company. Make sure you do you due diligences before signing.

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Anonymous said...

Thanks for the advice. Following your advice, I found that this website is good source to apply online for credit cards.

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