Some of you may be concerned about how debt consolidation will affect your credit history and ability to borrow into the future. The last thing that you would want to do is to fix one problem but create another. Not all debt consolidation solutions would have an adverse affect on your credit history, some may in fact help you to be perceived as a stronger borrower.
Debt Consolidation Loans
If you are able to qualify for a debt consolidation loan which actually puts your current debts all into a single cheaper facility, you will actually make it easier for yourself to pay down that debt sooner with no adverse affect on your credit history. The only problem with this solution is that it can be rather difficult to qualify for – people who will qualify are those who can afford not to consolidate.
Consolidate into home loan
A great consolidation alternative for home owners with available equity and strong income. This solution will allow you to pay home loan interest rate on your unsecured debts and can reduce your periodic payments. There is no adverse affect from this form of debt consolidation on your credit history. However it is not possible to consolidate existing debts into a new mortgage. Unfortunately your mortgage after consolidation needs to be no more than 90% of the property value.
Pay debts down one at a time
If you have been unable to qualify for either of the two solutions above, that does not mean that you will not be able to reduce your debts and eventually become debt free. Nor does it mean that the only debt solutions available to you are those that will adversely affect your credit history.
One of the best debt reduction strategies available is to keep your current debts and simply rank them in the order of most expensive to least expensive. You then commence by maintaining the minimum repayments on all your debts and apply all remaining income to repaying your most expensive debt.
Once the most expensive debt is paid down, you can move on to reducing the outstanding balance of your next debt. After you pay off the very first debt, there should be more disposable income available. The best thing to do is apply all that extra income to the remaining debts and so on.
It may be that your situation is tight and it is impossible to find any money to repay debts, all you have is the minimum set repayments, and sometimes not even that. Consider what can be done to either reduce your cost of living or increase your income. Some people simply take an interest free loan from a family member for several thousand for a couple of years. They then use this time to reduce down all the other debts.
Remember that nothing is impossible, some debt solutions are simply more challenging.