How California Debt Consolidation Helps Homeowners
Despite the glamour of living in a state famous for its beautiful beaches, Hollywood movie stars, and prime real estate, California homeowners in deep debt face the same bleak outlook as the rest of the nation. California also has the dubious distinction of having one of the largest debt problems in the U.S.
Too many homeowners are living large with budget-busting spending habits. And with the average household having 14 credit cards, California debt consolidation is a make-or-break situation for many homeowners trying to pay their entire household bills every month. But those who have taken the first step in consolidating their bills are finding out that there is a light at the end of the tunnel.
Getting Help from Debt Consolidation Agencies
Debt consolidation, including mortgage refinancing in California, is growing in popularity, and an increasing number of Californians are jumping on the bandwagon in an effort to improve their overall financial standing. As the national economy has gradually soured over the past few years, homeowners found making monthly payments on high-interest credit cards was getting them nowhere. California debt consolidation agencies have sprung up to help roll all those debts into one monthly payment.
One of the big advantages of a debt consolidation agency is that often, when contacted on behalf of the homeowner, credit card companies drastically lower the interest rate per card to a manageable level. When the high interest rate is lowered, paying on the principal amount instead of just the interest is suddenly much easier. The credit card balance begins dropping steadily each month, and homeowners are encouraged to see their debt level decreasing.
Avoiding Bankruptcy
Last year 1.5 million people filed for bankruptcy protection, and according to the Federal Reserve, consumer debt rose to $1.7 trillion last year. Many file for bankruptcy mainly because they don’t know of any other option. For those worried about losing their home, debt consolidation is often the answer. California home loan refinancing may also be a step in the right direction as long as you carefully consider the long-term affect.
California debt consolidation minimizes the chances of bankruptcy by reducing multiple payments into one monthly payment. Often the amount paid to the debt consolidation agency is less than if the homeowner tried to pay all the creditors individually. The net result is that after the flat monthly payment, more money is left over for the mortgage. Plus, dumping debt means no more annoying, stressful calls from collectors.
Knowing the Risks
Another reason debt consolidation can be so appealing is that having less debt makes it easier to get approved for a home loan. For renters this opens the door to home ownership; and for homeowners looking for help on their existing loan, this could mean refinancing. But before you do that, read more about how to avoid being fooled by a home refinance interest rate.
Another danger is that borrowing against your house can backfire: you miss a payment or default on the loan and you lose your house. Although many homeowners in debt looking for a quick fix would rather not admit it, the best approach to California debt consolidation is the more painful option – a change in behavior and attitude when it comes to handling money.
Always be careful how you consolidate any form of debt. Paying off debt using your existing income with the help of a debt consolidation agency is less risky than applying for a debt consolidation loan. Debt consolidation loans should only be used as a quick fix when needed and not a long-term cure. If you are not careful, many Americans who take out a loan to pay off credit cards or unsecured debt end up in worse shape within the next two years.
Although signing on for a debt consolidation loan may seem like a good thing when you’re desperate, it can be counterproductive when trying to reduce debt. Consumer Credit Counseling Services advises California homeowners to keep an eye on their debt ratio, and aim for monthly debt obligations to equal no more than 20 percent of their take-home pay.
