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Debt consolidation is one method of trying to get finances that are out of control back in order. It involves borrowing new money and using the proceeds to pay off existing loans or credit card balances and should produce a lower monthly payment as a result.
Debt consolidation is not right for everyone. Finding a lender willing to advance new monies may be a challenge when there is any payment blemish in the credit history. Likewise, although short term interest rates are still at record lows, fixed rates for term loans over 3 years are quite high meaning that finding cheaper funds is not that easy.
For the most part debt problems can be reined in by taking some simple but decisive action.
Firstly, the household must produce a realistic budget for what is spent. This enables tough decisions to be made as to where to cut spending and what items, such as mortgage payments, council tax and utility bills, have to be made. Once the discretionary spend areas are identified taking actions to cut them out can be taken.
Armed with what can be afforded each month the target now is to see which loans can be addressed to reduce their burden. Most lenders will be sympathetic to a request to reschedule payments to make them more affordable. By carefully explaining your situation and putting forward a sensible offer of what can be paid most lenders will accept to reduce the payments in return for a longer period.
Such requests for rescheduled payments are best made whilst the credit history is in good shape. Waiting until a default has occurred will make the lender think more carefully about the request so acting early before there is a real problem will get the best results.
Even though the credit card market is much reduced on previous years there are still a number of good value zero interest balance transfer deals. Many providers now have sophisticated screening tools that allow them to spot customers who hop regularly from deal to deal so be careful to research the best deal for your personal circumstances.
And remember that it is only the balance transferred that attracts a zero interest rate – new spend will be charged at the card providers standard rate so try not to spend on the new card once transferred. Any capital payments made will reduce the zero rate balance first leaving you back at square one if your spending habits do not change.
All card providers will also charge a fee for the transfer so make sure you understand how much is to be charged in addition to the rate on any new spend. Once the balance is transferred try to pay down the balance within the free interest period for maximum benefit.
Once finances are back under control the aim should be to continue with the thrifty approach and start to save. There are a number of money saving money making ideas to help improve the family finances but aim to create a savings pot of at least six months worth of normal family spend. This buffer will help should things go wrong in the future and give time to restructure finances to fit the circumstances.
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