Debt Consolidation
Home Loans - Advantages and Disadvantages - Lower Credit Card Interest
Rates and Tax Write-Offs
July 6th 2006
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With the rise of interest rates, debt consolidation is becoming more
common. It entails taking out one loan to pay off many others, and is
often done to secure a fixed interest rate or for convenience. It is
easier to write one check than many.
It may also be advantageous, especially if you are consolidating credit
card debt into a fixed home loan. Although there is some risk in
converting unsecured debt into secured debt, there may also be a tax
write-off. Also, the change in the bankruptcy laws has made it more
difficult to remove debt via bankruptcy. Consolidation could also entail
placing unsecured loans into another unsecured loan, but more often it
involves a secured loan against an asset that serves as collateral,
which is often a house.
In cases of a secured loan, the interest rate can be reduced due to the
reduced risk of the lender. When a debtor is in danger of bankruptcy,
the debt consolidator may buy a loan at a discount. According to
Wikipedia, a prudent debtor can shop around for consolidators who will
pass along some of the savings. But be forewarned, a consolidation can
affect the ability of the debtor to discharge debts in bankruptcy, so
the decision to consolidate must be weighed carefully.
There are some advantages in securing a lower interest rate over a
longer period of time. The lower rates can allow for the debt to be
paid off sooner because the amount paid toward the principle can be
significantly more.
It may be better to shop for a loan before payments are missed and your
credit score is harmed. Some unscrupulous companies will knowingly wait
until a client has backed themselves into a corner and must refinance in
order to consolidate and pay off bills. In these cases the available
lenders may charge the maximum allowed interest rate and the barrower
will be force to pay any allowable fee to complete the debt
consolidation.
You may also want to consider consolidating a loan into non-secured
debt. There are numerous credit card offers available that can lower
the rate of interest. Some companies will offer zero percent interest
for a limited time. If you are in a position to take advantage of these
offers, zero interest is best.
Dan Wilson
Best Syndication
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Lending
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