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Published: July 23, 2007
Thanks to the high price of gas, declining house prices and an increase in retail sales, Americans are more in debt than ever. For Americans, the median debt on credit cards alone is $6,600. According to a report from the American Bankers Association, Americans are currently falling behind on consumer loans at a rate unparalleled since 2001.
Americans take out more and more loans to try to fight off the debt, but the interest rates on loans are climbing. With nowhere else to turn and a promise of hope, many Americans turn to loan consolidation, or debt consolidation. The general idea behind loan consolidation is by combining all loans, the amount of debt will magically shrink. Before going through with loan consolidation, there are several things that consumers should keep in mind. MSN Money's MP Dunleavy offers people great suggestions about getting out of debt while maintaining loan consolidations are not the best options.
Loan consolidation companies often promise to help customers get out of debt quick while slashing interest rates. For example, the loan consolidation company Credit Solutions promises to wipe out debt in a one to three year period, and get the customer out of debt in a quick and easy way. This loan consolidation may be dangerous for people with bad credit. Dunleavy warns that credit consolidators promise low interest, but then take one look at the customer's credit score and give them an interest rate that is actually higher than the credit card's rate. Another factor Dunleavy cautions against is that other consolidators promise to do all the work without saying that there is a ten percent payment to the loan consolidation company. Some of these consolidation companies even have reputations for making late payments, thus worsening the customer's credit, not making it better. The third warning Dunleavy gives is that some loan consolidation companies offer balance-transfer cards with low interest rates. However, the interest rates quickly go up and the customer has to switch to another card. With so much action on the account, the customer's credit may worsen.
Instead of using loan consolidation, Dunleavy advises a better technique for getting out of debt includes taking out a home equity loan. With a home equity loan, the interest rates are low and tax deductible. Home refinancing is another alluring option of home owners. By using the maneuver, homeowners get very low interest rates and spread payments out over a 15-30 year period. She also suggests that cars can also be refinanced as well, slashing the interest rate and making the payments over a longer period of time. If a person's credit is fairly good, the person can apply for a personal loan from a credit union. Credit unions have lower interest rates than credit cards and as a result, can help the consumer save. Finally, Dunleavy suggests by making a call to a credit card company, a customer can try to negotiate better terms.
The same goes for student loan consolidation. In many cases, parents and students alike become overwhelmed by the weight of student debt. Better solutions include applying for scholarships or appealing to the financial aid department.
If loan consolidation still seems like a good way to get out of debt, a great resource is MSN Money Debt Consolidator. As an unbiased source, it provides an accurate interest rate as well as payment term. In terms of loan consolidation, it may be better for people to do the job themselves than to waste money on interest and loan consolidation companies.
Sources:
Dunleavy, MP. "Your 3 Worst Debt Consolidation Moves." MSN Money. 2007. 12 July 2007.
http://moneycentral.msn.com/content/Savinganddeb t/Managedebt/P36230.asp
Willis, Bob. "Borrowing Jump Tops Predictions." Bloomberg News. 9 July 2007. 12 July 2007.
http://www.chron.com/disp/story.mpl/business/495 4758.html
Credit Solutions. 12 July 2007.
http://www.creditsolutions.com/landing-0707/cred it-relief-help.html?s=ppcgoogle
Harrop, Froma. "Blame Nation's Rotten Mood on a Growing Sense of Loss." The Seattle Times. 12 July 2007. 12 July 2007.
http://seattletimes.nwsource.com/html/opinion/20 03785221_froma12.htm l
Loan consolidation companies often promise to help customers get out of debt quick while slashing interest rates. For example, the loan consolidation company Credit Solutions promises to wipe out debt in a one to three year period, and get the customer out of debt in a quick and easy way. This loan consolidation may be dangerous for people with bad credit. Dunleavy warns that credit consolidators promise low interest, but then take one look at the customer's credit score and give them an interest rate that is actually higher than the credit card's rate. Another factor Dunleavy cautions against is that other consolidators promise to do all the work without saying that there is a ten percent payment to the loan consolidation company. Some of these consolidation companies even have reputations for making late payments, thus worsening the customer's credit, not making it better. The third warning Dunleavy gives is that some loan consolidation companies offer balance-transfer cards with low interest rates. However, the interest rates quickly go up and the customer has to switch to another card. With so much action on the account, the customer's credit may worsen.
Instead of using loan consolidation, Dunleavy advises a better technique for getting out of debt includes taking out a home equity loan. With a home equity loan, the interest rates are low and tax deductible. Home refinancing is another alluring option of home owners. By using the maneuver, homeowners get very low interest rates and spread payments out over a 15-30 year period. She also suggests that cars can also be refinanced as well, slashing the interest rate and making the payments over a longer period of time. If a person's credit is fairly good, the person can apply for a personal loan from a credit union. Credit unions have lower interest rates than credit cards and as a result, can help the consumer save. Finally, Dunleavy suggests by making a call to a credit card company, a customer can try to negotiate better terms.
The same goes for student loan consolidation. In many cases, parents and students alike become overwhelmed by the weight of student debt. Better solutions include applying for scholarships or appealing to the financial aid department.
If loan consolidation still seems like a good way to get out of debt, a great resource is MSN Money Debt Consolidator. As an unbiased source, it provides an accurate interest rate as well as payment term. In terms of loan consolidation, it may be better for people to do the job themselves than to waste money on interest and loan consolidation companies.
Sources:
Dunleavy, MP. "Your 3 Worst Debt Consolidation Moves." MSN Money. 2007. 12 July 2007.
http://moneycentral.msn.com/content/Savinganddeb t/Managedebt/P36230.asp
Willis, Bob. "Borrowing Jump Tops Predictions." Bloomberg News. 9 July 2007. 12 July 2007.
http://www.chron.com/disp/story.mpl/business/495 4758.html
Credit Solutions. 12 July 2007.
http://www.creditsolutions.com/landing-0707/cred it-relief-help.html?s=ppcgoogle
Harrop, Froma. "Blame Nation's Rotten Mood on a Growing Sense of Loss." The Seattle Times. 12 July 2007. 12 July 2007.
http://seattletimes.nwsource.com/html/opinion/20 03785221_froma12.htm l
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