Consolidating Debts: A Risky Short-Term Fix

2008-09-26 11:31:02

( Financial )



When you are having financial trouble, consolidating debts seems like a simple solution. Advertisements help to make it appear so easy, claiming that you only have to pay a single monthly bill or you reduce the interest rate on all debts. Consolidating debts may help you solve your financial woes, but you must have the discipline needed to make it a successful strategy.

One of the strategies in consolidating debts is to combine all debts onto one credit card. While you may get lower interest rates from this type of card, you are often charged with costs, such as balance transfer fee. If you fail to read the fine prints, then you may not know that these low interest rates are only good for the first six months. You will then be charged with a higher rate after this introductory period.

In addition to a low-rate credit card, home equity loan is another way of consolidating debts. You would be lucky to get a lower interest rate on home equity loan these days, especially if you are already on the verge of insolvency. Even if you would be able to find a low-rate equity loan, you would need to watch out for the fees that would be charged to get loan approval. If you accumulate more debts after you get this loan, you might lose your home because lenders would require you to make it as the collateral of your loan.

Another option when consolidating debts is to get a debt management program from credit counseling agencies. The agencies will negotiate with your lender to either waive the late fees and penalties, or to lower your interest rate. You will have to pay for this type of service, however. And it may total to hundreds of dollar, which can be costly on your part.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.