Monday, June 6, 2011

Credit Debt Consolidation – What is it and what options are available?

Our first inclination is to always encourage a homeowner to turn to their home for a credit debt consolidation, strictly due to the fact that it’s the most affordable and flexible choice.

We wrote this article to talk about ALL of the credit debt consolidation choices available to anyone who struggles with debt. Let’s discuss the 5 most widely advertised credit debt consolidations.

Unsecured consolidation loan. There are many variations of unsecured consolidation loans that include lines of credit (often offered by banks) and term loans (offered by banks and finance companies). This is a viable option if your total debt is relatively small (less than $10,000). Compare the rate of the term loan against the rate of the consolidation loan. Do not take out a consolidation loan at a higher rate of interest than what you are currently paying to your credit cards. Some loans have “front loaded” interest, meaning the first payments will go primarily to interest. Ask a lot of questions. What is the interest rate? What is the term? Is there a balloon payment at the end? Is the interest front-loaded? Etc.

Home equity loans.There are also many types of home equity loans, from lines of credit to mortgages. A home equity loan does not impact your first mortgage because it sits in second position on title to your home. The home equity loan is secured against your homes equity. Depending on your credit, home equity loans charge significantly less interest than unsecured consolidation loans and offer more flexibility when negotiating your monthly payment. Home equity loans are offered by banks, finance companies and are available through most mortgage brokers.

Credit Counselling. Credit counselling is intended for people who have a low income and a limited amount of debt (less than $10,000). Credit counselling programs involve making a single payment to a credit counselling agency that is in turn distributed to your creditors. Due to the fact that it involves paying your creditors less than your contractual minimum payment, the end result is that it will damage your credit.

Consumer Proposals. Consumer proposals are administered by trustees in bankruptcy and involve making a settlement to your creditors that is much less than you actually owe. If accepted by your creditors you will make a single payment to a bankruptcy trustee for 3, 4 or 5 years. A consumer proposal can be paid off at any time and is removed from your credit report three years from the date it is paid in full.

Bankruptcy. A bankruptcy trustee also administers bankruptcy and once you are bankrupt you will be obliged to the trustee for a period of time. While undischarged you will make a monthly payment to the bankruptcy trustee based on your income. Each month you must report your income along with participating in credit counselling sessions. A bankruptcy will remain on your credit report for 6 years after you have satisfied the obligations to your trustee and become discharged.

For more information about credit debt consolidation visit www.gtamortgagematters .com.

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