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Top 10 Best Debt Consolidation Moves

[Mar 10, 2009.]


Over on MSN Money, MP Dunleavy writes about the three worst debt consolidation moves. Instead of just dwelling on the negative, here’s a list of ten positive steps to consolidate debt and maximize wealth:

Review Spending for “Leaks”
FMF wrote about “budget leaks” a few years ago, and that advice still holds. A strong debt consolidation plan requires a serious review of everyday spending. Experts advise Americans to hunt down small line items on bank statements and credit card bills for expenses like:

  • ATM fees that pull $2-5 per visit.

  • Recurring fees for subscriptions to magazines, websites, or services that rarely get used.

  • Too many unscheduled visits to fast food restaurants or coffee shops.

Liquidate the Closets
Getting out of debt often requires bringing in more money. Financial experts note that selling rarely used shoes, bags, or electronics can quickly pay down many of the credit cards used to pay for those good in the first place.

Renegotiate Credit Cards
With the recession impacting credit card issuers, many lenders would rather sacrifice short term revenues to maintain long term profitability. A growing number of banks now allow cardholders to join special payment programs that lower interest rates or waive certain fees in exchange for automatic monthly payments.

Balance Transfer High Interest Debts
Many credit card issuers are reducing credit lines without notice, in an attempt to reduce their overall risk during a recession. Reviewing interest rates and using balance transfers to consolidate debt on a low interest card can help minimize monthly finance charges.

Consolidate Student Loans
Although private lenders have offered student loan consolidation for the past few decades, consolidating eligible loans directly with the Department of Education can qualify some graduates for debt relief programs.

Auto Refinancing
Lenders now offer six or seven year auto loans, which reduce monthly payments in exchange for higher interest over the life of a loan. Alternately, some lenders now offer refinancing deals that shorten the term of an original loan, allowing faster payoffs.

Personal Loan
A handful of banks and credit unions offer unsecured debt consolidation loans to borrowers with good credit. Unfortunately, few Americans seek this kind of program until they really need it -- at which point, they might not qualify due to sudden job loss or reduced credit score. Still, exploring opportunities with trusted lenders can help many borrowers combine a few smaller bills into a more easily manageable monthly payment.

Home Equity Loan
Paying off unsecured debts with funds from a home can be risky. However, when overlimit and late fees prevent cardholders from gaining ground, a home equity loan can buy some breathing room.

Cash-Out Refinancing
When a home equity loan isn’t enough to turn the tide of serious debt, some homeowners may want to consider cash-out refinancing. Because of the risks involved, borrowers may only want to consider this option if low credit scores or a layoff have made other forms of debt consolidation unattainable.

Seeking Professional, Credible Debt Counseling
Finally, any borrower can get free debt consolidation advice from accredited, not-for-profit credit counseling organizations. Experts advise consumers to do research before making an appointment, since some counselors use non-profit status to convince borrowers to join expensive payment programs instead of offering legitimate advice. True counselors can help borrowers learn effective budgeting and can guide borrowers through effective negotiations with lenders.

Not every one of these steps is right for every American. However, with solid advice from a debt consolidation expert and a willingness to commit to a budget, many borrowers can eliminate debt without waiting for help from a stimulus package.


About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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