Pay debts or save for retirement?

Nowadays, the doubt that many persons have is what to do with some monthly extra income. Fist of all, if you have pending loans and/or don't have at least 3 months of income in your savings account never spent any extra money in banalities. Your doubt should be only one: save the money for retirement or pay off all or part of your credit debts?

The best path to financial freedom is to eliminate all pending debts! Why? Because with this you save money in interests and reduced your monthly financial burdens, therefore at medium-term you will have more available money and then you can save for retirement. Overall, you will have more money because you paid much less interests to the credit institutions.

Nevertheless, remember to have at least 3 months of monthly income in your savings account to protect you from some unpredictable misfortune (health problem, car accident, house reparations, etc...).



Home Equity Loans

Home equity loans allow a homeowner to borrow money giving as guarantee his house (if full paid) or a fraction of the house usually the value already paid from the first house mortgage(i.e. the value of the house that is effectively owned by the owner). Persons that want to borrow a relatively large amount of money and don't have a good credit usually chose this loan option. A home equity loan is a type of second mortgage.

Most banks consider a home equity loan as relatively safe if the considered value of the home given as guarantee is close the effective market value. Even after the crisis a house is a secure asset, if and thats a big if, its value is correctly evaluated according the the current and future market conditions

Home Equity Loans Advantages

Home equity loans are attractive for several reasons. They typically have a lower interest rate (or APR) and are easier to qualify for if you have bad credit report. Payments on a home equity loan may be tax deductible. Moreover, it is relatively easy to get relatively large loans with this type of loan and associated guarantee

Most Common Home Equity Loan Objectives

Persons use home equity loans for several types of expenses. But they should be considered only in cases were the money is for applying in secure investments like: remodeling and renovating the house itself to increase its value, pay for a family member education or to consolidate high-interest debts. Never use this type of loans to acquire perishable assets or to risk in stock market. Always keep in mind that you may lose your home if you fail to make the required payments on time.

Another danger that you must considerer is exist persons and companies that will try to "sell" you multiple monetary products like equity loans even if they are aware of your financial situation and that you may not be able to fulfill your duties. They will present you only with easy paths, and any easy path almost always is not the best. Never trust these easy paths and consult more than one back/company, compare offers and check all variables. Ask (and then after make your own math) and make sure you will be able to pay in a long term manner, sometimes you may be able to pay the first years but then the rate will increase exponentially and you reach your limit. Also, do't stretch your capabilities to the limit, leave a margin for any unpredictable happening in your life.

Find the Best Home Equity Loans

making an initial extra effort to find the best home equity loan can make you save thousands in future and even guarantee your families stability in future. In order to get the best loan, make an exhaustive search over the multiple potential companies (banks, brokers, and credit unions). Manage your credit score and make sure your credit reports are accurate. Ask your friends and colleagues to see who they recommend. Also, make a lot of questions even the hard ones that they don't want to wear and you don't want to ask (long term payments value, consequences if you miss a payment, etc...).

5 advices for those wishing to consolidate loans

1. Prevent a first

Calculate all your loan payments and ensure that these total does not exceed 35% of your monthly income. Make sure that you have available on your savings account the equivalent to five or six times the monthly household income, to help you cope with unexpected expenses in your household as a health problem.

2. Talk to your bank

Contact your bank and try to renegotiate your loans. Consolidation of loans allows to decrease the monthly loan payments, however is an option that can be costly. Apart from the interest increase, consider the costs of opening your loan case or the penalty for early payment.

3. Prefer a mortgage

Find institutions that allow you to join several loans in one. If you find and choose to consolidate, prefer a mortgage: interest rates are lower than a personal loan.

4. Ask everything

When negotiating the loan, ask the complete costs of the entire process. Compare the APR (annual percentage rate). These reflect the total cost of the credit. You should try also a reduction or exemption of fees, as it relates to the early amortisation.

5. Consolidate, if necessary

You should only consolidate your loans if it is really inevitable, that is, when you really can not sustain the monthly payments of all your loans. Go to several credit institutions, choose only institutions with outstanding values and compare as many proposals as you can.

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