When times were good it was easy to be casual about money. Credit Card Companies used an aggressive marketing strategy offering all kinds of incentives to consumers to take and use their cards.
They often gave unsolicited credit limit increases and such temptation was often too hard to resist. Inevitably people often lived beyond their means and used credit cards to withdraw any money needed to meet their financial obligations.
They often simply made the minimum 5% payment to comply with their cards’ regulations. Their debt almost crept up without their noticing and when the recession came there were many casualties.
Is this you? Did you find yourself running up debts with credit cards while also having a personal loan or two? When your property was increasing in value all the time you could remortgage as a last resort you may have thought. Once that growth stopped and in fact your property began to lose value there was suddenly no obvious escape route.
Or was there? While it is much more difficult to obtain a mortgage because of tightening criteria there are plenty of companies that are prepared to lend money to those able to make the monthly installments. Those with a bad credit history may have to pay a slightly higher interest rate companies are willing to advance money unless they can provide security that will be taken in the event of your defaulting.
The only sensible loan to take is one that will pay off all existing debts as part of a plan to become debt free. If those debts are on credit cards the rate of interest you will be paying on outstanding balances is prohibitive.
A minimum monthly payment will do little other than comply with the conditions of the card; it will hardly touch the outstanding balance. The balances must be paid with a consolidation loan at a far cheaper interest rate.
That part of the exercise is simple. You will know your future monthly commitment and the monthly sum you are paying to do little but tread water with your credit cards.
The difference can be substantial. You should also pay off any personal loans at the same time, even ones with only months or a couple of years to go. The disadvantage is paying them off early doesn’t hide the fact that you are partly extending those loans. Everything needs to be put into a single monthly payment; it is so much easier for you to budget that way and get control of your finances.
A consolidation loan is only part of the solution to removing debt. The other is financial discipline. Once you consolidate you achieve nothing if you begin to use credit cards gain as you did before. One card for convenience should be enough. You must make sure you pay off the balance each month to avoid the punitive interest. You are not living beyond your means if you follow that rule.
The hidden benefit of successfully getting a consolidation loan and maintaining the payments each month is that your credit rating will start to improve even though you still have debts until the end of the agreed period.
It may be advisable to get advice in the first instance to ensure you have the right solution to your problems; you do not want to extend your debt longer than you need to do. Perhaps you can make some economies so that your disposable income will increase allowing you to pay more per month but then become debt free earlier as a consequence.
There is light at the end of most tunnels for those that have learnt the lesson the dangers of those easy credit days. It is unlikely they will return.
|Thank you for reading this article. If you like my blog, consider subscribing to Finance Product Reviews via RSS or email. You can also subscribe via Facebook or Twitter by clicking on those icons on the top. Thank you!|
Disclaimer: Finance Product Reviews is an independent website. Although we may have advertisement relationship with financial institution we review, they do not influence our decision or rating of products. Contents of this site are not provided by any financial institution, banks, brokerages or credit card issuers. Opinions expressed here are author’s alone and are not reviewed, approved or otherwise endorsed by the product owners.