Finances

Barron Advisors Talks – What Steps To Take Before Debt Consolidation

Barron Advisors – What is Debt Consolidation?

Most of us have debt and some of us just plain ole have too much of it.  The reasons are varied and many times all quite good reasons – life happens and debt results.  You may have heard the term debt consolidation thrown around or maybe someone mentioned – just consolidate your debt… So what exactly is that?  Per Investopedia.com – Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones. In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable payoff terms: a lower interest rate, lower monthly payment or both. Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.

Barron Advisors – Secured Debt Consolidation

Generally speaking secured debt consolidation means you have assets to back up that debt and act as collateral.  Not everyone has collateral that they could put towards consolidation but some do.  Things such as cars, home, investments, property etc… These tend to have lower interest rates because they are backed by collateral and they are easier to obtain – you would be considered less of an investment risk for an institution.  Depending on the collateral approval amounts may be high.

Barron Advisors – Unsecured Debt Consolidation

Unsecured debt consolidation is so much more difficult to get and it comes with a higher interest rate.  You are considered to be much more risky and institutions are less likely to consider approving the request.  Unlike a secured “loan” where you could probably get thousands of dollars depending upon the collateral you have – an unsecured loan may only help with a few thousand dollars as a way of minimizing their risk.

What To Do Before Consolidating Debt

Evaluate options

There are ways to pay off debt that do not involve debt consolidation.  No matter what you do or don’t do – it is going to be a long process to get the debt paid off.  Hopefully it didn’t get there overnight and it won’t be able to disappear overnight.  If only it were that easy.  Which method of paying off debt will get you out of debt faster and cheaper.  That’s the ultimate goal right?  If debt consolidation is set up as a ten year payoff option but you could pay it off sooner using a different method on your own – which would you choose?  Don’t just assume debt consolidation will be faster and cheaper.  It may very well be – but not always.  The trick is doing it on your own takes extreme dedication to the process.  No faltering.

Interest rates

Interest rates vary significantly.  Now perhaps you could get a debt consolidation loan for 10%.  That is clearly a deal over a credit card interest of 19% – pretty much a no-brainer.  But what about the mortgage that is at 3.75% or the student loan at 5%?  Make sure you are rolling debt in that will not cost you more in the process.

Downsize

This is totally the rage right now.  Between the tiny home movement and cleaning out the clutter – there are many ways to make money.  While some ways are more immediate than others – there are ways.  For me, when I don’t make enough in a month (blog life) I start selling some things.  I need to be able to pay for my horses – totally not giving them up, but I always don’t want to put their entire well being on credit cards.  Same principal though – when I get to the 20th of the month and don’t have enough money – time to declutter.  If your situation involves something as grandiose as selling your home and downsizing – clearly that takes more time.  Now is prime time to sell the little stuff though.  Gone are the days of relying on Ebay – there are so many other and more immediate options.  Now we have so many other forums to sell our stuff and there are even sites dedicated to telling you how.  Personally I use Facebook Marketplace most, Mercari, Etsy, Craigslist, and Facebook groups (for my local area).  On that note – when I need to buy things these are also the first places I search.  Most times what I am looking for, I do not need new.

Minimum Payments?

Are you that person who only pays minimum payments on everything?  That is the best place to start.  Do whatever you can to pay more than the minimum payment on at least one.  Sell things to add to that payment; offer services on Fiverr to make more than the minimum payment.  Any way you can make extra money – apply it to at least one payment – either the one with the highest interest rate, lowest balance due or some other criteria that works for you.  Once you pay that one off commit to using that same exact dollar amount (and more if you can) to pay off the next one and move on.  You’d be surprised how fast it disappears after that.

If You Have a Mortgage – Should You Refinance?

This is also an option and a really good one if you have a higher interest rate.  Many times there are deals right now for 5% or below FIXED.  It is definitely worth investigating with your local banks (and don’t forget credit unions) to see if you can do better.

Barron Advisors Talks Credit Cards

The dreaded credit cards.  No doubt they probably helped to get you into this situation.  Maybe you can use them to help get you out?  There are often opportunities to get low interest credit cards – the banks want to get you in the door.  In these instances you can transfer some of your high interest rate credit card balances to the new lower interest rate cards.  The trick is that the lower interest rates are often only for a period of time – such as a year.  Then in the small print – if you don’t pay it off in a year you will have to pay all interest that would have been incurred at a higher interest rate.  Yup they are that sneaky.  Even knowing that I have had to do it a time or two.  It allowed me to pay off other debt with my snowball method during that period then I simply tackled this new debt.  Not fun.  You could also reach out to the credit card companies to see if they can reduce your rates.  Often though unless you have missed multiple payments (which I do not recommend doing on purpose) they won’t even consider the idea.

Moving On

So you have done all you can do and still feel you need to do more.  Then definitely it is time to reach out and start investigating debt consolidation with Barron Advisors as a reliable resource.

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