Reducing your Monthly Obligations When you are Credit Challenged

By: Billy Alvaro

For those who have good credit, finding a way to reduce monthly obligations is a pretty simple task. It can range from obtaining a personal loan to consolidate some loans to refinancing your home mortgage or car loan at a lower interest rate to using the debt stacker method. For some, it may be as simple as finding a new credit card with a lower rate of interest and using it to pay off the higher interest cards. Whatever the financial situation is, for those with good credit, there are several different options that are open for consideration.

For those who have less than perfect credit, the options are limited, and it can be more challenging to find a way to reduce your monthly payments. Certainly there is the possibility of cutting household expenses in order to have more funds available to make the monthly payments on household expenses as well as loan payments, but it's somewhat more difficult to find a way to reduce loan payments when you have credit problems. Though difficult, that doesn't mean that it is impossible. There are lenders who are available to work with people who have less than perfect credit, but you have to be willing to be a higher interest rate in order to find a lender willing to work with you.

If you own your own home, it is easier for the credit-challenged person to obtain a loan to help him meet monthly payments, but it can also be dangerous as well. After all, you are putting your home as collateral to secure the loan, so you have to be certain that you can make the monthly payments so that you don't lose your home. In all probability you are going to have to pay a higher rate of interest than you would if you had good credit even though the loan is fully secured. If you have high interest credit cards that are adding to your financial burden, and thus affecting the status of your credit, this may be a good option for you to consider. You want to reduce your monthly payments in order to get your credit back in track, so a consolidation is a good way to do that if you are a homeowner.

You want to take the time to weigh putting your home's equity on the line in order to consolidate your debt. It's important to look at your overall financial situation and determine if that is really the best solution to your problem. Better yet hire a wealth coach to go help you with all your financial decisions. A n expert wealth coach or personal economic advisor will act like your financial guardian, assisting with your debt elimination as well as wealth accumulation plan. Keep in mind if you do this alone without an advisor, once you sign the contract, there is no turning back, so take both the advantages and disadvantages into consideration.

* The loan is secured by your home, thus if you fail to make the payments, you can lose your home even if you are paying on your primary mortgage

* If all of your equity is tied up in a consolidation loan, it will not be available if you need it for something else.

* Is a consolidation loan the best option for you, or should you consider debt management? I would say no to debt management, however, in a few cases it may be the only option.

* Will the payments on a consolidation loan be low enough to help you get your credit back on track?

* Will the addition of a loan with tax-deductible interest benefit you?

* The biggest concern you should have if you do this without a wealth coach or economic advisor is not digging yourself back into a financiall hole!

Although debt management may appear to be a viable option, there are many scams that are out there that in the end, you may be better off attempting to work out a reduced interest and payment plan with your creditors. For instance, some unscrupulous debt management firms have come into existence over the past few years that will take your money and never turn it over to your creditors, thus leaving you with having to work out agreements with your creditors or looking for a financial institution that will approve you for a consolidation loan in spite of your credit. Another horror story on debt management companies is that they will make settlements with your creditors without your permission, thus leaving your credit in worse shape than it was. Add that to the ones who tell you the fee is one price, and they charge you another by taking your checking account information and creating an electronic check or using Electronic Funds Transfer. They will often do this without consulting you first, and in some cases leave you with almost nothing in your checking account. Instead of debt management, utilize credit counseling services that will help you get your finances in order without charging you a fee.

It is certainly easier for someone with good credit to find ways to reduce their monthly obligations, but it is not impossible if you own a home and have less than perfect credit. The key is finding the best solution to the problem. In some cases work with a debt management company is a better solution than a consolidation loan. Weigh both options before you make a decision.

copyright 2008 Billy Alvaro

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