Debt consolidation is tidying up your financial mess by gathering all your debts into one convenient pile. Instead of juggling multiple payments to different lenders monthly, you roll them into a single, easier-to-manage loan.
It streamlines your debt, making it simpler to handle and potentially saving you money on interest if you can secure a lower rate. So, instead of feeling overwhelmed by various bills, you can focus on paying off that one consolidated loan. It’s a handy strategy for getting your finances in order and moving towards a debt-free future.
Is Debt Consolidation a Good Idea?
Debt consolidation is a wise strategy for individuals who have:
- Good credit scores
- Qualification for better terms
- Can afford new monthly payments easily
So, debt consolidation is unsuitable if your credit score needs improvement and your debt amount is insignificant.
Why Do People Consolidate Debt?
Streamlining various outstanding loans into one decreases the number of payments and interest rates you must focus on. Debt consolidation also enhances your credit score by reducing the probability of late payments. That’s why people consolidate debt to break free from the worries of managing multiple payments at a time.
Benefits of Debt Consolidation
If you do it right, debt consolidation can offer you the following advantages:
- Simplified Finances
Instead of managing multiple debt payments with different due dates and interest rates, debt consolidation combines them into a single, more manageable payment each month. This simplifies your financial life and reduces the chances of missing payments.
- Lower Interest Rates
If you can secure a debt consolidation loan or transfer your balances to a credit card with a lower interest rate, you can save money on interest charges with time. This can help you get rid of your debt more efficiently.
- Potential Lower Monthly Payments
Debt consolidation helps extend the repayment period or negotiate better terms. Therefore, it can, at times, result in low monthly payments. This provides prompt relief to your budget.
- Enhanced Credit Score
Consistently making on-time payments through a debt consolidation plan can positively impact your credit score. It reflects responsible financial behavior, which credit bureaus view favorably.
- Avoidance of Default
Debt consolidation can help you avoid defaulting on your loans or credit cards, which can trigger serious consequences. These consequences include damaged credit, collection actions, and legal proceedings.
- Single Creditor Relationship
Instead of dealing with multiple creditors, you can have a single point of contact when you consolidate your debt. This can make communication and resolving issues easier.
- Psychological Relief
The reduced stress and anxiety from a clear plan to tackle your debt can greatly improve your financial well-being. Knowing you are taking proactive steps to address your financial situation can provide peace of mind.
Debts don’t hurt as much as interest costs do. Debt consolidation is, so far, a useful technique to deal with interest rates. Doing it right can even save you money in the long run. So, now that you know what is debt consolidation, it’s time that you utilize it upon need.
Suppose you are a company owner looking forward to taking over another company or purchasing a useful asset but are short on liquid capital. A business acquisition loan is what you need in this scenario.
You can get this loan in more favorable conditions when buying something tangible, such as an asset or equipment. Such tangible business assets can work as collateral if someone becomes a defaulter.
What Is the Function of a Business Loan?
Businesses and start-ups often apply for business loans to step into new marketplaces, asset purchases, or to pay for business’s operating expenses. There are several kinds of business loans. An acquisition loan is mainly taken for buying tangible assets or taking over a business.
It is an exchange where another business takes over businesses or their tangible assets. For example, Google acquires $50 million in Android.
Kinds of Acquisition Loans
There are various types of asset-based loans. Therefore, they all serve various purposes and are taken for different reasons. The following are some common types explained to develop a better understanding:
- Start-Up Loans
This is the most common kind of acquisition loan you will witness. Young entrepreneurs with a great business idea but lacking investment usually apply for it. Local banks and many other lending institutions grant them.
To qualify for a startup loan, you must show the lender you have all the great skills to run a successful venture. Such as a well-presented business vision and a strategy to make it true. If you succeed in impressing the investor, you can acquire a startup loan.
Small Business Administration (SBA) loans as the name suggests, work to provide loans to support small businesses and start-ups. About 85% of the total SBA loan amount is backed by small business administration. This greatly minimizes the risk if the borrower fails to pay.
The small business administration has a huge structure installed to help borrowers locate suitable lenders. They also offer any process-related help upon request. Furthermore, the borrower gets better loan payment windows and interest rates.
- Business Expansion Loan
A business expansion loan depends on the skills and expertise of a business owner to operate a business profitably. These loans are meant for existing businesses. Therefore, only business owners are eligible to apply for them. Your business must have a strong presence for some time to deserve expansion finance.
- Equipment Financing
Equipment financing eliminates the requirement for extra collateral. The equipment, such as a plant or machinery, is tangible and can work as collateral. This is why it is more of a financing method than a loan.
Every business has ups and downs. It’s never a smooth ride. Therefore, business loans exist to support business people to propel their businesses through thick and thin. A business acquisition loan helps in business growth rather than fighting the odds.
Most mortgages have a fixed interest rate, meaning the interest you pay stays the same over the entire loan period. But with adjustable-rate mortgages, it’s a bit more flexible. Initially, an ARM usually offers you a lower interest rate than a fixed-rate mortgage. However, this interest rate can change over time. It’s not set in stone.
But why would someone go for this rollercoaster ride? Well, some folks like the idea of a lower initial payment. If they plan to sell or refinance before the rate starts to adjust, it could be a money-saving move. But if interest rates go up, your payments could go up, too.
Adjustable-Rate Mortgage Example
Suppose you take out a 5/1 ARM loan. The “5” indicates that the initial interest rate is fixed for the first 5 years. The “1” indicates that the rate can adjust annually after that.
- Initial Period (First 5 Years):
Loan Amount: $200,000
Initial Interest Rate: 4%
Monthly Payment (principal and interest): Let’s say it’s about $1000.
For these first 5 years, your interest rate remains steady at 4%, and you make consistent monthly payments.
- Adjustment Period (Starts in Year 6):
After the initial 5 years, the interest rate can now adjust annually based on a specified financial index. If the index increases, your new interest rate becomes 5%.
- Adjusted Period (Year 6 Onward):
New Interest Rate: 5%
Monthly Payment after recalculation: With the new interest rate, your monthly payment will increase to around $1,250.
- Future Adjustments:
Every year after that, your interest rate can adjust based on market conditions. If the index goes up, your rate and monthly payment could go up; if it goes down, your payment might decrease.
How Are Variable Rate Mortgages Attractive Options for Borrowers?
Fluctuating-rate mortgages provide multiple advantages that increase the number of borrowers. These advantages are:
- Minimal Initial Interest Rate
The floating-rate mortgage loans demand lower initial interest rates. This indicates paying lower monthly installments, promising the convenience you seek. Such a low initial interest rate lifts the debt burden. The principal amount stays lower, with minimal interest in the long run.
- Multiple Options
An ARM loan can cater to your multiple needs. It is available in numerous ways to make the whole experience less burdensome. It helps you greatly while buying a commercial property. It enables you to achieve stability before you pay the actual amount and the interest.
- Improved Saving
Being able to save money is the biggest attraction for people. You can benefit from the falling rates without refinancing. These falling rates indicate that you can save significantly in the long run and invest in other personal ventures. You can make the most out of your investment if you build a powerful portfolio as an investor.
To attract borrowers, adjustable-rate mortgages offer easy-to-reap benefits. One is that it requires the least paperwork with a simple application process.
College can form a whirlpool of responsibility in which you can be deeply immersed without even realizing it. Therefore, it can be hard to maintain a good credit score. You might even recognize the importance of maintaining a good credit score until you pay high interest rates for your mortgage or car loan.
Credit Score Ranges
Credit score ranges are put together as a guideline for individuals to identify the ideal credit score as they grow. Your creditors can set their terms and conditions while offering you a loan. But the following is a general outline to determine the ranges.
- 720 or higher Outstanding or ideal credit score
- 690 to 689= Good
- 630-689= Average
- 629 or below= Poor.
Your previous earning record and how you deal with other loans can also impact the creditor’s decision.
Is 700 a Good Credit Score for a Student?
A 700 credit score may not sound promising, but it’s considered fair for a college student if you are new at building credit. A credit score that falls anywhere between 670 to 739 is considered healthy. However, you must focus on it from the start and possess a good credit history.
How to Improve Credit Score?
Building and maintaining a good credit score throughout college promises financial success after graduation. Following are some tips to graduate with a high credit score.
- Avail of a Student Card
You can apply for a student credit card with an easy application. Such cards offer various benefits, especially designed for students. Student cards can help you develop an ideal credit score if you pay your bills on time and have a small credit utilization percentage.
- Qualify as an Authorized User of a Credit Card
The majority of the students don’t own a credit card. However, you can still become a user on your parent or guardian’s credit card. Whoever finds you trustworthy and lets you use their credit card. You won’t be responsible for paying the bills, but the usage will add to your credit score.
- Acquire a Credit Builder Loan
Credit builder loans are a feasible choice for college students with strict financial constraints or poor credit history. When you apply for a credit builder loan, banks don’t let you keep the money till you are done paying off the loan. Your credit score increases with each payment you make.
- Pay Your Student Loans
Paying off the debts early affects your payment history. For accruing interest, paying off interest can save you money in the long term. However, making these payments will enhance your credit score.
Credit Score Check
Students who have a bank account or credit card use digital apps. Such applications have associated features where they can calculate their credit score. The internet is brimming with various free websites and apps that allow credit score assessments and even guide you on how to do them effectively.
A credit score is all about evaluating how well you have managed your finances in the past. As a college student, learning to foster a good credit score forms a good reputation in the eyes of creditors to help you overcome unpredictable financial challenges.
For individuals who are barely making ends meet, taking debts now and then is a common thing. They make things easier for you. However, the real struggle and brainstorming begins when you have to pay them back.
How Do You Pay Off Debts Fast with A Low Income?
No matter if you earn high or low, debts that you take have to be paid off. Paying off your debts on time increases your credibility and helps you achieve discipline in life.
1. No More Loans
When you attempt to pay off a previous loan, you take another one. You are not getting rid of the loan but shifting money around. So, promise yourself not to apply for another loan. You should freeze all your credit cards for a while unless there’s a dire need.
2. Determine the Amount of Debt
Write down every outstanding amount of medical bill, loan, or utility bill you have pending. Add them all up, like estimating the amount of accounts payable. Your main payables should also include interest, penalties, or late fees.
All these calculations will help you determine the exact amount you need to pay off. So you can aim to save this much.
3. Set a Budget
A budget helps you in keeping track of your income. Make a list of all your fixed expenses (rent, car installments, etc.) with income generation sources. When you subtract your fixed expenses from your total income, the difference is what you have available.
That remaining amount can go into variable expenses like groceries, clothes, etc. You can put some money aside to pay off your debts.
4. Start with The Smallest Debt
Although it won’t be a big achievement, small wins can boost your morale. Suppose you have two loans of $200 and $400; pay the $200 one first. Seeing those small figures diminishing will give you a feeling of relief and pride. This will also help you stay disciplined and achieve momentum.
Find ways to earn extra money. The freelance market is growing every day. Learn high-paying skills by giving it 2 hours every day. The gig economy has brought countless remote jobs, such as copywriting, graphic design, and food delivery.
Make the most of your free time and put that extra income into paying off your debts faster. Improving your credit score can also be beneficial.
6. Aim for Paying Off Larger Debts
You can start targeting larger debts once you get rid of smaller bills. Make a strategy where you pay the smaller debts, then tackle the larger debt with the highest interest rate with the leftover amount. These interest rates keep increasing, so try to get them off your shoulders first. Paying attention to large debts will motivate you to save money monthly.
Low earnings don’t mean far-fetched debts. With patience and a clever strategy, you can eliminate them in no time. You can contact us at Red Door Funding to enhance your credit score. Call us at (832) 539-1099 to book a consultation.
If you have a second property you are currently not using? Renting it out can be quite tempting if you own that property. But if you are still paying its mortgage, you must tell your mortgage lender, who won’t allow it. You can’t seem to eliminate the idea of making some extra bucks.
Can I rent a Room in My House with a Mortgage?
Renting a spare room to generate extra income can be a good option. You can decide and do it whenever you want, especially if you’re still paying the mortgage. It becomes even more interesting that now you can pay your mortgage loan with rental money. However, you need the full consent of your mortgage lender.
Renting My House on Mortgage Legally
Suppose you wish to turn your home into a source of steady income. You still can do it without violating the laws. You can take the following measures:
- Check Your Contract
Go through your contract and learn about the kind of loan. This will help you understand the applicable guidelines regarding home renting laws. You can also call your mortgage lender to ask about the procedure to transform your home into a rental house.
- Upgrade Your Insurance Policy
Once you’re done convincing your mortgage lender to rent out your home. Your next step should be to modify your insurance policy if you have any. This will provide a significant amount of coverage and save you from liability.
- Monitor Changes in Tax
Seek guidance from a seasoned tax accountant regarding your tax reporting duties as a landlord rather than an occupant.
- Receive Required Permits
You might require a special permit if it is your first time renting a property. Your government issues such a permit after ensuring your property fulfills all safety guidelines.
- Understand Housing Laws
If you will appear as an available rental, learn about the Fair Housing Act. It restricts homeowners from discrimination based on race, color, sex, family background, or disability.
Do I Need Permission to Rent Out My House?
Besides taking permission from your mortgage lender, certain other permissions and requirements exist. To turn your house into a revenue-generating machine, you need:
- Take permission from your mortgage provider
- Acquire a certificate of occupancy
- Inspect the Home Owner Association (HOA) policies
- Get a landlord permit
- Examine regional rental regulations
- Meet short-term rental demands
- Get the required insurance coverage
- Find out about tax implications
Renting out your vacant property is a good move, a futuristic investment. But it has to be done without breaking the law. Especially when you are still paying the mortgage and don’t fully own the property, discuss your idea with your mortgage lenders before looking for new tenants.
We at Red Door Funding are the reliable mortgage lenders you need. Call us at (832) 539-1099 to discuss your concerns.