Can a debt consolidation loan eliminate your credit card debt?
A consolidation loan might (or might not) be the key. There are
several things you must consider when making the choice to
consolidate debt using a debt consolidation loan.
First, is a debt consolidation loan your best choice to
eliminate or substantially reduce your debt? There are other
options available to you, including credit counseling and
bankruptcy. Obviously bankruptcy is a last resort. You must
examine several factors when making your decision on which debt
reduction / elimination strategy to use. You need to get information on debt consolidation to make the correct
decision. •How much outstanding debt do you have?
•What is the interest rate of your current debt? Many credit
cards have interest rates of 14% - 22%, depending upon your
credit rating and payment history. Obviously, the higher your
current average interest rate, the better off you will be if you
consolidate your debt with a consolidation loan at a much lower
rate.
•How much of your outstanding debt is unsecured? Unsecured debt
has no collateral against it. Credit cards, student loans, store
charge cards and medical bills are examples of unsecured debt.
If you have over $7,500 in unsecured debt there a multitude of
lenders that you can look at. Student loans fall into a
different classification from other types of unsecured debt. In
the United States, most are backed by the federal government.
Usually you will have to use a secured debt consolidation loan
to pay off your unsecured loans. You may also be able to
refinance your secured debts, but you usually cannot consolidate
secured debts.
•Do you own a home or other substantial assets to use as
collateral for a debt consolidation loan? If you own a home or
other real estate, how much equity do you have in it?
•What type of interest rate is available to you for a
consolidation loan? The interest rate you receive on your loan
is affected by a multitude of factors including the prime rate.
For student loans, the borrower interest rate on consolidation
loans is currently calculated as the weighted average of the
interest rates in effect on the loans being consolidated,
rounded up to the nearest one-eighth of 1 percent. They are
capped at 8.25 percent.
•How is your credit rating? Someone with a very good credit
score has options open to them that those with lesser credit
ratings do not.
Keep in mind that if you have more than 20% equity in your home,
you are usually not required to carry private mortgage insurance
(PMI). If you have reached the 20% equity stage through either
paying down the principal, asset appreciation, or both, you can
probably drop PMI and lower your payment. On the flip side, if
you are not paying PMI and you take out a consolidation or other
home equity loan, you may put yourself back under the 20% equity
threshold. This would require you to get a new PMI policy.
Factor this in when making your cost / benefit analysis.
If you are constantly slipping backward and your cash flow is
poor, you can improve things with a debt consolidation loan. Be
careful and weigh your options carefully. Take into account the
tax benefits you may receive by using a home equity loan to
consolidate your debt. This benefit will vary depending upon
your tax rate. You can get many free quotes for debt
consolidation loans. There are several places that have multiple
lenders compete for your business. Talk to several lenders to
see which will give you the most favorable terms. You can
substantially lower your monthly payment and significantly
improve your cash flow situation with a debt consolidation loan.
Just make sure this is the right choice for your needs.
automation to business and finance. See his website, The Debt and Loan Consolidation Guide for more
information.
I started my own business, forming a LLC. Should I open a business credit card account?
I just started the business the beginning of the month and have been using one of my regular credit cards for some miscellaneous business start up expenses. Should I continue to just devote this credit card for my business or actually get an American Express Business card?
Answer
it might help you to keep things straight to have a separate card for your business but I wouldn't worry about getting a card designed for businesses necessarily. American Express has annual fees and you could do without that. I would just get another card for yourself or for the business to keep things straight between the 2. Many start-up businesses fail and not managing money properly is the biggest reason. It sounds like you have a business with low overhead or you planned ahead and paid cash for most of it. Try to stay on that path because interest and other fees can add up quick at a time when you are learning a lot of new things about running your business. By having a business only credit card DOES NOT protect your own credit if the business were to fail. The debts you take on for your business are backed up by you. A bank or lender will almost never give a newer business credit just based on the business with only that liable. Yes you have an LLC but that doesn't cover you on debts related to the business, more with lawsuits and things like that against the business.
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Small business credit cards have demonstrated their value over and over again to a lot of small business proprie...