The current down shift in our economy may be having a personal effect on you. Maybe you were depending on cash flow from your real estate holdings or dividend payments to help you with your debt payments, but all that has changed. You may now be forced to fall behind on your debt payments because you need to spend all of your income on necessities. And falling behind on your payments has a snowball effect, because it also affects your credit rating. A lower credit rating can result in increases in insurance payments, and it is harder to get approved for a loan. You may be the perfect candidate for a consolidation loan to help pay off debt. It could be the best way for you to address your financial problems, and actually save you money in the end.

You may not be able to increase your income, but you can reduce expenses, and that helps your bottom line. If you could get a lower interest rate on all of your debts, then you would be reducing the cost of that debt. You didn’t think the interest rates were too high when you took on the debts at first, but times have changed. The good news is that interest rates are now lower. If you can consolidate all of your debts into one debt consolidation loan, at a lower rate, then you can begin to climb out of the financial hole you have fallen into. The sooner you act, the better, because each day that you fall farther behind in your payments, your credit rating gets lower, and this affects the interest rate you could get on a consolidation loan. It also increases your overall debt, since you will be paying interest on top of unpaid interest. We are usually told about the power of compounding interest when it applies to our growing savings accounts, but it has the opposite effect on our finances when it is applied to our debts.

It helps if you have mortgage equity in your home or property that you can use as collateral. This would allow you to get a lower interest rate. But be very careful before putting your home up as collateral for a loan. If you default on the loan you could lose your house, so make sure you will have enough income to make your payments. If you can’t get a secured loan, there is still the possibility of getting an unsecured loan. These come with a higher interest rate and usually have more fees, but they can still be worthwhile if the interest rate spread is large enough. In all cases it is incumbent on you to do the math to determine if a bad credit debt consolidation loan is right for you.

Filed under: Debt Management

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