Consolidating debts pros cons
He was previously an Associated Press reporter and editor in Washington, D.C., a correspondent for Westwoood One Radio Networks and Marketwatch.Debt consolidation loans are usually stretched over a long period, which means that your total interest payments add up to a very expensive debt.Paying off short term debts like credit cards and personal loans over much longer periods, even at a slightly lower rate, actually means paying a lot more interest in the long run.Consolidate Non-Mortgage Debt in Second - means that you consolidate your existing non-mortgage debt by doing a cash-out refinance on your second mortgage, leaving your first mortgage as it is.
That's when consumers might consider taking out a debt consolidation loan, using the proceeds to pay off all or most of the existing debts so that there is just a single payment, usually for a lower amount, each month.One is the total monthly payment, which consists of mortgage payments, mortgage insurance premiums if any, and non-mortgage debt payments if any.Borrowers on tight budgets must be concerned with the monthly payment, but it should not be the major determinant of their choice.This is often done to secure a lower interest rate or for the convenience of paying only one loan.Although debt consolidation has its advantages, there are also unforeseen negative consequences that need to be considered, says Clark Gardner, CEO of Summit Financial Wellbeing."Our opinion is that the negative consequences outweigh the benefits."Advantages• Making a single payment.• The consolidated instalment may be less than the combined original instalments. Many consolidation companies charge very high upfront fees and interest rates that are close to the maximum allowable rate for mortgage loans.
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The four most often-used strategies are balance transfers, personal loans, cash-out refinancing and home equity loans.