Monday, March 22, 2010

Finding Your Way Out of the Debt Dungeon

This economy roller coaster ride is all upward spikes and downward spirals. The truth is, between the time traveling up and then plunging back down, our finances don’t seem to have gotten anywhere near the destination we’d like. We want financial stability, and freedom from the worry of how we’re going to pay the bills with our income as strapped as it has become. If your mortgage payment and all the other bills you owe equal more than your monthly salary, you may be in a position where you need an intervention in the form of a refinance or a debt consolidation loan.

Refinancing your house, especially if it has retained its value and your current interest rate is either fixed and high, or worse yet, adjustable, is a great way to get out some of what you’ve put into the house, equity. Still, if your credit history is less than wonderful or the house has, due to the plummeting housing market, lost value, a mortgage refinance may not work for your particular set of circumstances.

Consolidating all your monthly debts into a loan, which leaves you with one monthly payment, instead of a dozen, is the best option in this situation. Suppose you have a mortgage payment that would not be so bad, but you also have four credit cards, a car loan and maybe an unsecured line of credit that are all vying for slices of your income. There is no way you are going to come out on top at then end of the month without some help. That is what it means to consolidate your debt. It means you take all those smaller loans and lump them into one big loan. The new payment will be a lot lower than the combined sum of the individual loans, leaving you with more money to spend each month.

There are, of course, down sides to both options. As mentioned before, a home refinance may not be smart for consumers whose homes have not retained or gained any value since they entered into their existing mortgage. In addition, a consolidation of debts will buy you some breathing room, but you will have a long-term loan that, for all intents and purposes, is almost like having another mortgage payment every month.

Only consider bankruptcy as a last resort. For some people who have managed to sink so far into debt that there is no way out, filing bankruptcy can allow them to get out from under the burden and start again. They will, however, start with a broken credit rating and in some states, even the home in which they live is not protected under bankruptcy law.

Wise consumers who find they are considering any of these options during these difficult financial times would benefit from the advice of a professional. You can find qualified debt counseling services that can help you weigh your options and assess your circumstances. These financial advisors can then give you an unbiased opinion of what your best option would be. Choosing the right option to get your debt under control now will give you back something the economy has taken from most of us, the sense that somehow you are in charge once more.

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