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Many people have found themselves, for various reasons, subject to credit card debt with high interest charges.
Those seeking relief from this situation have three cheap ways to reduce this debt burden.
The first of these is to transfer credit card balances to a card with either a lower interest rate, or ideally, a zero percent rate. Zero per cent balance transfers require a little number crunching to make sure that the transfer fee is not worse than the interest that would otherwise accrue. For example a $1000 balance from a card with a 15% APR would typically carry a $30 transfer fee. That same balance, left on the 15% APR card would subject you $12.50 per month in interest. Over three months, this equals $37.50, so if the zero percent balance transfer offers a repayment period longer than three months, your debt load will be reduced. Currently, there are zero per cent transfers offering from 6 to twelve month terms, and 10 months is common. This example, for simplicity assumes no additional charges, and does not account for minimum payments since these can vary considerably from one card issuer to another. It is critical to make timely payments so as not to lose the zero per cent rate, and it's a prudent idea to divide the balance transferred into a payment that will result in a zero balance by the time the zero per cent offer expires. In our $1000 dollar example. With an offer of 10 months duration, you would have to pay $100/month to retire the debt by offer expiration. This idea makes the most sense for cards with the highest APRs.
Debt consolidate loans are the next way to consolidate debt. Debt consolidation loans can be of two types: Secured and Unsecured. Secured loans require some form of collateral, such as a house or the equity of that house. They will usually offer a lower interest than an unsecured loan. This method puts the collateral at risk in the case of a secured loan, so carefully consider this before jumping in. Yes, the monthly payment will be lower, but if the debt management plan turns unsecured debt into secured debt in the form of a mortgage on a residence used as collateral, a longer term, resulting in more interest being paid, can be the result. On the other hand, the lower interest rate on a secured loan can often result in lower monthly payments and less total interest being paid, allowing the debt to be retired sooner. Each individual scenario is unique, but someone who has a high load of high APR credit card debt, but a significant amount of home equity, can use debt consolidation plans to their advantage. If facing imminent bankruptcy, debt consolidators may be able to purchase your debt at a discounted rate, and may pass some of this savings along to you. They offer the additional benefit of combining multiple payments in to one payment making it simpler to keep track of how much is due and when it is due. as opposed to multiple credit card payments that can fall due throughout the month. The consolidation process can have an effect on the ability of the debtor to completely discharge debt via a bankruptcy filing.
Finally, taking out a loan against cash value life insurance is a very economical approach to debt consolidation. You are basically borrowing your own money, so this technique offers a very low interest rate. The risk involved is that in the event of the death of the insured, beneficiaries of the deceased will see their benefit reduced by the amount of the loan.
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