You held off as long as you could, but the bills are piling up and the creditors are starting to call. Its only a matter of time until they pass it off to a collection agency, then the real stress begins.
If you find yourself in this situation you only have a few options. They are:
- Debt consolidation loan
- Bankruptcy
- Debt settlement
Today we'll take a look at...
Whether its a personal loan from a friend, a loan from a bank, or a mortgage against your house, the concept is the same. The idea is to take one loan at a low interest rate to pay off all your outstanding debts that are at higher interest rates, thus giving you one low monthly payment within your budget.
Historically, mortgages against your home are the lowest interest rates you can find. Lenders feel you'll try harder to protect your home than you would anything else. If you have equity, income, and a decent credit score, then I'd say this is your best bet.
Of course, you need to be careful that the loan officer or lender has your best interest in mind. I would always suggest pricing your loan out with at least 3 different loan officers from different companies to ensure you're getting the best deal.
Here's what you do...
- Make sure you provide them with a credit report so each LO doesn't go crazy pulling your credit and adversely effecting your score. Get your credit report with FICO scores, the only scores the lenders use, from www.myFICO.com. They can use that score to shop your loan, but they'll need to pull their own credit report if you retain them to submit your loan.
- Your loan officer should interview you so that they can find you the best loan for your goals and financial situation. They need to know how long you plan to stay in the house, if you have any major purchases coming up (i.e. if your kid is going to college, take more equity out now and save yourself from additional closing costs in the future), as well as the obvious questions that they need to know for a standard application. As long as they ask those questions, either in person or through an application, that's a good sign.
- Get their offers in writing. You want to see the closing costs and terms of the loan before you sign or agree to anything. The more points you pay, the lower your monthly payment should be and vice versa. Application fee, credit report fee, points, and rate are negotiable. Some title fees may be negotiable as well. A good loan officer will reply with at least 2 loan scenarios/options. You'll end up with around 6 different offers to choose from. Just go with the offer that most closely matches your goals at the best overall price.
- Remember, you can walk away. If the documents at closing are different than what you were promised, just walk away. You can rescind up to 3 days after you sign the closing documents.
Click here If you'd like me to refer you to one of my trusted home loan consultants.
A loan from a friend or family member is also an option, though not a good one. Once you start bringing money into a relationship, the dynamic of that relationship changes. You are now a borrower/debtor, and your friend, a lender. In my opinion, friends are worth far more than any amount of money or any stress that comes with a lack of money. Still, it is an option and it should be mentioned. Just be careful. You can bear any stress if you have the support of family and friends.
A personal loan is a better option. You'll need to apply BEFORE you fall behind on your bills. Once your credit is damaged, you won't be able to get approved or the rate will be so high it won't benefit your situation.
There are many great new sources of funding for people who need personal loans. A number of sites have popped up that match people who need money with people who have money to lend. The site takes a small fee and the lenders bid on the interest rate they want to earn on their money.
Here is a good one:
www.LendingClub.com
Click here for Part II: Debt Settlement Versus Bankrutpcy
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