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Deciding To Consolidate Debt?
What is the point of consolidating debt and when should you do
it? What are some of the options for consolidating debt? At some
point in their financial lives, many people ask these questions.
If you have been pondering these thoughts, read on.
Consolidating debt means different things to different people.
To a young couple or family thinking about buying a home
consolidating debt may be necessary to lessen their debt to
income ratio. For a single person tired of writing ten or twenty
checks each month consolidating debt may be a way of making
his/her financial life more convenient and organized. A family
with college age children may consolidate debt in order to fund
a college education. Older people on the verge of retirement may
be considering debt consolidation as a way of simplifying their
lives and adjusting to a change in income. All of these
scenarios are sound reasons for investigating debt consolidation
and all require different approaches for said consolidation.
What types of debt consolidation might be used by the people in
each of the previous situations?
A couple on the verge of their first home purchase may find that
the amount they owe on their credit cards each month takes up
too large a portion of their monthly income. Sometimes lending
institutions will not approve a home loan for a buyer who does
not have a certain amount of unobligated income. In order to
free up a little income the couple may choose to consolidate
their debt. To accomplish this all of the current bills would be
paid off via a lower interest, longer term loan. Because the
loan is not costing them as much in interest and is being paid
off over a longer period of time the monthly payment would be
smaller. Thus, the proportion of debt to income would be lower.
When a person is just tired of writing a great number of checks
each month and concerned that one month a payment due might get
overlooked, he/she may choose to do
a simple debt consolidation
for the purpose of bringing all of his/her bills under one roof.
If the person has good credit this is easily achieved. Sometimes
if the debt is refinanced at a lower interest rate not only will
the person end up with a more convenient payment he/she will
also have a lower payment.
A family which owns its own home may tap the equity in that home
to pay for a child's college education. In order to do this the
home must have accumulated sufficient value to cover the cost of
the mortgage, the cost of the refinancing, the cost of the bills
to be rolled over and still generate enough cash to pay for the
child's schooling. Given the rate at which home values have
appreciated in recent years having this much equity is not
unreasonable. However, homeowners should not make their homes
piggybanks for any type of expense that comes up. Constant
cashing out of a home's equity is expensive and perhaps even
dangerous over the long run.
Persons nearing retirement age may choose to consolidate debts
in order to make life less complicated as well as to make living
less expensive. This type of debt consolidation is also done by
accessing the equity in one's home. If the mortgage is long
standing and the couple has maintained good to excellent credit
it may be that the house can be refinanced at a significantly
better interest rate while also generating cash to pay off a
substantial number of bills. Thus, as the couple enters their
retirement years they have a lower house payment and fewer bills
to pay.
The above examples illustrate just a few ways that debt
consolidation may enhance the lifestyles of modern consumers.
About the author:
If you would like to read more of my personal
articles, please feel free to visit my debt
consolidation blog!
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