Debt consolidation strategies

DEBT CONSOLIDATION

You don't need to own property to be able to consolidate your loans.

Consolidating loans with your existing mortgage is very effective if you owe large amount of money on your credit cards, personal loans, car loans, etc. See the Example-1 on our home page.

What type of strategy you should use when consolidating your debt

Financial discipline is a must if you want to control your debt. If the interest rates change on your existing loans and credit cards you should adjust your spending accordingly. Paying more money in interest rates means there will be less spending money available. The options available here are: Reduce your spending to compensate the rise in interest rates or consolidate your debts into a single loan.

There a are two types of debt consolidation. One is to obtain a debt consolidation loan and merge all your existing loans and credit cards into one single loan. The larger total amount owed will produce larger savings for you. At the same time the larger the total debt the more difficult is to obtain a loan. It is much easier to consolidate $10,000 than $50,000 or more. By using this method you save money and have a convenience of servicing one single loan instead of several loans at different times and different repayment rates.

Generally when you owe more than $30,000 on your personal loans and credit cards it is recommended to merge those loans into your existing mortgage. Currently the interest rate on a standard home loan is about 6%. Compare that to personal loan and credit card interest rates (12% to 30%), and savings potential becomes obvious. Personal loans with the total of $50,000 may require $1,500 or more in repayments each month, but those $50,000 merged into your mortgage will require repayments of only $325 per month. The savings of almost $1,200 each month! This "extra" money can be reinvested back into your mortgage repayments or have it as a additional spending money.

Now you don't have any more personal loans and your credit card balance is back to zero. A large percentage of people will start using their credit cards again and go back where they started before personal loans and credit cards debt consolidation into their mortgage.

Some financial institutions offer zero-percent (or a very low 2% to 6%) interest rate credit cards. You may be able to replace all your existing loans with one of these credit cards and save money. However, you must be careful as usually this offer is only an introductory offer valid only for first 6 to 12 months. After this time expires the interest rates will change to a standard rates which in some instances may be higher than your original interest rates.