3 Shortcuts to Shrink Your Debt That You Should Handle With Care
One of the situations when a person can face the most pressure is when he or she is in serious debt. The first thing that comes to mind when in this scenario is, of course, to think about a way to reduce the amount of interest you are subject to or the amount of overall money you owe. There are a few ways to accomplish this of course, but you have to know that, despite them being tempting, they all come at a risk. You can achieve great results with them, but if you fail to pay attention to the details, you can end up losing even more money.
Let’s take a look at each of them:
1. Transfer balance between cards:
Balance transfer credit cards are financial instruments that are used frequently by customers to move usually unsecured, high-interest debt from one card to another that offers zero percent interest rate for a period anything between 6 to 18 months. During the time the debt goes to that card, it incurs in no interest rate.
Naturally, this can help you get rid of your debt a lot faster if you’re consistent with your payments. However, most cards tend to charge a balance transfer fee, which you will have to pay of course.
Now, the risk of balance transfer cards is that while the promotional period lasts, you risk forgetting about your debt instead of keeping on paying it. So by the time the promotional period expires , not only your debt is intact, but you will have also paid additional card fees and perhaps would need an additional personal loan to repay everything.
2. Consolidating Your Debt:
– Consolidating your personal loan: A short while ago, when acquiring credit was easier, one of the most common ways to consolidate your debt was simply taking a home equity loan and then using it to repay a credit card debt of higher interest. The risk with this method is that you turn an unsecured debt into a secured one. So if you end up missing on your payment, you will put your home at risk.
– Consolidating your payments: There are several financial companies that offer debt relief by negotiating with your creditors in order to get you better terms for your debt. This turns your debt (like a personal loan for example) into one consolidated payment.
The problem with the companies that provide this service is that they have long lists of complaints at the Better Business Bureau, so that means that they not always act on good faith.
So, whenever you deal with these debt-relief companies, always take care of fees that are higher than advertised, make sure to read every paper you will sign and also verify that they provide you with all the promised services and never charging before getting any results.
3. Debt settlement:
Many companies that debt consolidation services also tend to provide debt settlement. This means that in addition to trying to lower the interest rates on your personal loan, they also try to reduce the amount of your debt.
Like mentioned above, while you will definitely be tempted to reduce your debt balance, you should be very careful about which company you choose to work with you. In the case of debt settlement, make sure to double-check their reputation before accepting their deal, since they will be an intermediary between your creditors and you, so every mistake they make will come back to you in the end.
What you can do to avoid these companies while at the same time being able to negotiate is to negotiate yourself or use a third party.
In any case, you should always try to minimize your risks. So make sure never to miss the fine print on every deal you make, otherwise you risk damaging your reputation, your credit and even more.