Credit Counseling Services Overview
How Credit Counseling Works How the Debt Management Program Works What Our Services Cost
Financial Tips
Ways to Save Money How to Improve Your Credit Managing Credit When Your Life Changes
Budgeting Tools and Calculators
Housing Counseling
Group Presentations
Client Testimonials

Borrowing Money

Loans are easy to find these days, but struggling to pay them back can wreak havoc on debt management efforts. Unfortunately, the easiest loans to get are often the most costly to pay back. Before you decide to borrow money, consumer credit counselors advise reviewing all lending alternatives and carefully reading all documents.

Translating the Fine Print

Make sure you read and understand all the terms in the agreement, debt management experts advise. Does the credit card require membership or annual fees? Are the rates variable or fixed (the differences can be hundreds of dollars)? Do you understand how your finance charges are calculated?

If you must borrow, consumer credit counselors say, be sure to budget for payments, interest and finance charges. For example, on a $500 loan at 18% interest, the minimum payment is $20. Not a big monthly hit, but it will take nearly five years to pay that off, with interest of $216.14. At those costs, consumer credit counselors warn that a loan should be a last resort.

Consumer Credit Counselors Explain Loan Options

If a loan is the best option for debt management, it is critical to select one appropriate for your personal situation. Debt management experts explain the most common types:

Home equity loans: Based on the equity you have in your home. They are common but risky, according to consumer credit counselors, because your home is pledged as collateral. The Federal Trade Commission has published a warning about scams on their website.

Payday loans: Short-term, high-interest loans that are illegal in some states. You borrow money against your next paycheck and must pay weekly interest rates as high as 20%. If you miss a payment, you must file for an extension and pay a fee. Annually, you could pay as much as 250%.

Term loans: Available from finance companies, these carry fixed interest rates comparable to those of high-interest credit cards. They include charges such as mandatory life, credit and health insurance policies. State laws govern these loan amounts and rate ceilings, so be sure to research your state regulations.

Credit cards and "credit-card flipping:" (Credit consolidation deals) These are offered by many companies, but most have a catch. Some offer small lines of credit with high annual fees. Some offer introductory interest rates that increase once your application is accepted. Others offer "secured cards" that require deposits in low-yielding savings accounts.

Reverse mortgages: Payments made to you against the equity you have in your home. In effect, the creditor is gradually buying your house. As long as you live there, you do not have to pay back the loan. Receiving regular monthly payments can be tempting, especially to retirees on a fixed income. But debt management experts point out that once your home is purchased, you no longer own your most substantial asset.

An alternative to a consolidation loan is restructuring your budget to pay off debt. For help, consider the benefits of consumer credit counseling. The debt management experts at Consumer Credit Counseling Services, a ClearPoint agency, are trained to educate consumers in how to effectively evaluate and manage their finances for effective debt management.