In these tough economic times, many people are facing seemingly insurmountable amounts of debt. Many Americans are simply living beyond their means, aided by the ease in which credit cards and limit extensions can be obtained. Credit card companies make their money off of people simply by having the accounts open. And the longer it takes individuals to pay off their debts, the more profit the credit lenders stand to make. A popular option presented to many individuals is the opportunity to 'consolidate' their debts. What this means in simple terms is that numerous different personal loans and/or credit cards can be combined into one 'debt', which the individual then makes a single payment per month on. There are numerous options for how this can be done, two of which will be outlined below. Before making a decision on the what is best for you, it is imperative to do a cost analysis on the personal benefit for each for you, and if it is even feasible. A debt loan calculator can take care of this calculation for you, like the one offered from Bank rate, or an agency that specializes in free debt consolidation counseling.
The first option available is a home equity line of credit, which is exclusive to those who are already home owners. The equity that you have in your home is defined as the difference between the current fair market value of the home versus the amount left to pay off on the mortgage. Say for example, you have a house currently worth $100,000, and owe $70,000 on your mortgage. This would mean that you have $30,000 worth of equity in your house, which a bank would then be willing to lend you a portion of (usually up to 80 percent). Based on the amount of equity you have in your home, a home equity line of credit may be an excellent debt consolidation option. For example, payments per month on $25,000 worth of credit cards can easily be more than $500, while the payment on a home equity line of credit may be considerably less, perhaps $100-200 per month depending on the associated interest rate. One important factor to keep in mind when considering a line of credit is that most banks will require for it to be paid off in a certain amount of time (say 10 years). This would most likely not be feasible if only the minimum payments were made, so plan to be able to adopt a more aggressive pay off strategy.
A second option to be looked at (especially for those who are not home owners) is transferring balances to zero interest credit cards. As stated above, credit card companies make more money the longer an account is open, primarily off the interest you must pay. Based on your credit rating, you may be able to transfer some or all of your balances to lower, or even zero percent, interest rate cards. This will save a ot of money on a month to month basis, as you will be paying off the principle balance directly rather than mostly interest. Be sure to keep an eye on the terms of the card, as the interest may suddenly jump up to outrageous rates after 12 months or so.
Read this article: Debt Consolidation Loan Calculator - A Genie at Your Service
Article Source: http://EzineArticles.com/?expert=Roger_M_Davis
Article Source: http://EzineArticles.com/1703107