As a parent, your primary objective is to take good care of your family and protect them to the best of your ability so that they flourish and grow up to be caring and responsible adults in their own right. As every parent knows, this is only possible when there is enough money to go around. However, often when there is no ready cash available, you simply buy whatever is needed and often much more by using your credit cards without thinking whether you can afford it.
When you continue to do it for a long time, it is quite possible for you to max out your credit cards. If you have reached the limit of your ability to borrow and all you can see is a sea of ever-increasing debt due to the steep interest costs and late payment penalties, you need to think hard about how to resolve the problem and get back your family’s financial security. If due to the circumstances, your credit score has taken a major hit, it can make the journey to financial safety harder. A quick look at how you can consolidate your debts to save significantly on the interest cost even when your credit has been damaged:
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What Is Debt Consolidation?
As a concept, debt consolidation is extremely simple, which is why most people understand how it works and can make it successful. Debt consolidation is simply the aggregation of all your credit card debt and loans. You can take a fresh loan or avail of a new line of credit to access funds to repay each of the debts and save on the high cost of interest that can then make more money available to you and your family for essential needs. To get the maximum savings, ideally, you should have a good credit score; however, even if your credit score is not impressive, there are still some ways of consolidating debt that can save you a lot of money.
- The local credit union: Typically, credit unions are established on a not-for-profit basis for the members of the local community, as a result of which, their rates of interest are typically lower than that charged by other conventional lending institutions. Generally, their lending policies are flexible enough for loans to be extended to members whose credit scores are less than ideal, especially when they have enjoyed a very good relationship with the credit union in the past. It is quite feasible for the loan officer to look beyond your credit score and take into account your financial history, past relationship, and personal circumstances.
- Online lenders: Web technology has permitted lenders to go online and reduce the cost of operations by dispensing with the need for physical infrastructure and front-end staff. You can just visit their website and feed in your details to get a quote online within seconds and also get the funds transferred to your bank account in a matter of days. The application process too is completely online and made simple without the need for complicated paperwork typically required by banks. There are many online lenders like NationaldebtRelief.com who are ready to lend to applicants with poor credit scores; however, the rates will be higher than for those with good FICO scores.
Home Equity Loan
If you are a homeowner with substantial equity on your mortgage, you can take a loan against it at a very low rate of interest since the home acts as collateral. Since your credit score is not used to qualify you for the loan or as a factor to the set the rate of interest, it can be a savior for parents in credit card debt distress. However, the decision to take a home equity loan should be taken with great care because, in the event of your default, you could be jeopardizing your home, which is not a great situation to be in for the sake of your family. You should only proceed to take the loan if you are certain that your cash flow problem is temporary and by saving big on the interest expense, you will comfortably be able to repay the loan. A big plus of home equity loans is that the interest paid is tax-deductible, according to https://www.marketwatch.com.
- Loan against your life insurance policy: While this is not an option that is very popular since most people do not know it, taking a loan against your life insurance policy can be extremely viable. Not only is the rate of interest comparatively low but also since borrowing against your policy, the application process is straightforward and there are no credit checks or verifications to be undertaken. Since the loan will reduce the terminal benefit of the life insurance policy, you need to think hard before taking it as in case of your sudden demise, you will be leaving behind a sum much less than earlier planned, which might compromise your family’s financial security.
Getting into a credit card debt trap is very easy but it can take lots of very determined effort by parents to get their family’s financial security back into good shape. It is very important to be circumspect before signing up with a private lender for a debt consolidation loan because the industry is known for unscrupulous companies that take fees upfront even though it is illegal for them to do so with the lure of giving loans at very attractive rates, however, the loans are typically never given out at all. Again, some companies advertise low rates but hide nasty surprises in the fine print of their agreements, so you need to be very careful when selecting a lender, especially when you have bad credit.
It is important to go through your credit report very carefully and find out whether your poor score is deserved or if it is due to incorrect reporting. If this is the case, you should immediately complain to the concerned rating agency and have the error rectified. Knowing your actual credit score can help you to approach lenders that are the most appropriate otherwise; you will just lose time applying to lenders with higher cutoffs. Shopping around for the best rates is, however, essential even when you are desperate for a bailout.