Is Debt Consolidation right for you?
Before considering a Debt Consolidation loan you need to ask yourself a few questions.
Are you a candidate for debt consolidation?
- Are your credit card balances increasing every month?
- Do you only pay the minimum payment?
- Do you think your installment loan payments are too high (car loans or personal loans)?
Different types of debt
Good debt is typically anything that is tied to an asset (i.e. mortgage or car loan) and that has a fixed payment schedule. A debt that you know has a definite end date and the interest is fixed at the beginning of the loan.
Bad debt are any revolving debts (i.e. credit cards or store charge cards). These are debts where the interest is accruing each month and they only require a minimum monthly payment. There is no fixed payment schedule and no definite payoff date for these accounts.
Figuring out your needs for Debt Consolidation
A good rule of thumb is if your monthly payments for your bad debts are higher than the good debt payments then you might be a good candidate for a debt consolidation loan. You can analzye your situation very easily with the help of a simple mortgage calculator. Add up all the balances of all your obligations that you want to pay off including your outstanding mortgage balance, then select a rate and loan term. This will give you an idea of what a new payment could be. Then just simply compare that to your current budget of payments. You could alleviate the stress of trying to keep up with 3-4 payments per month and instead have just one.
Before attempting any debt consolidation speak with a debt consolidation professional. They can reveiw your situation and give you honest unbiased recommendations.
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