Debt Consolidation Explained
- Author Trisha Dingillo
- Published April 23, 2010
- Word count 717
Debt Consolidation isn't always the easiest financial concept to grasp. If you've been overwhelmed by debt and bill collectors, the confusion of what to do may stack on a new level of stress. Consolidating debt doesnt have to be difficult. Combine all of your debt into one new loan, with one payment, a lowered interest rate, and possibly an overall debt reduction... now were getting somewhere.
You dont have to be IN debt to be concerned about it or feel it beneficial to consolidate. Whether you've been a victim of unemployment or are still making a good income, you may want to gain leverage and get involved in your financial well being.
Let's face it, most of us need to control our consumer urges. We've grown accustomed to bad spending habits. But for some, managing debt may simply boil down to organizing our money.
There are a few ways to accomplish this. Debt Consolidation Loans, Consumer Credit Counseling and Debt Management Services.
Debt Consolidation Loans
A debt consolidation loan is a brand new loan created to pay off a number of old loans and credit lines, often created by a traditional lender. If you own a home with equity, restructing debt should be easy, but keep in mind that lenders rules still apply. Try not to let your arrears get so far as to ruin your credit rating, and by all means, dont stop making your payments! (even if its $5 a month). The following are a few do it yourself methods.
-
Open a new second mortgage, usually through a home equity loan, or home equity line of credit. These typically have lower interest rates and are payable over a shorter period of time than a first mortgage.
-
Refinance your first mortgage, using the extra cash from the equity of your home to pay old debt. If you can lower the interest rate on your first mortgage by at least 1%, it's a good time to refinance.
Pros: Lower interest rates. One Payment for all your debt. Tax Advantages.
Power to settle payoff balances at a reduced amount.
Cons: Additional Closing Costs. Less equity in property (higher risk). Debt negotiation not included. Converting unsecured debt to secured debt.
- If you don't own a home, you may seek qualification for an unsecured personal loan through a bank or credit union to consolidate debt.
Pros: Consolidation without owning a home. One Payment for all your debt. Possibly lower interest rates. Power to settle payoff balances at a reduced amount.
Cons: No tax benefits. Harder to qualify for because they are not secured by collateral. Debt negotiation not included. Typically higher interest rates than a mortgage.
What type of debt can be consolidated?
Credit cards, medical bills, second mortgages, automobile loans, practically all debt can be consolidated, even tax liens can be paid off with a consolidation loan.
Note: Student Loans can also be consolidated but student loans typically have a lower interest rate than a first mortgage or home equity loan. Also, student loans are usually unsecured loans. To consolidate them using a mortgage would be converting them to a secured loan, using your home as collateral, putting it at a higher risk.
If you dont feel comfortable structuring your own debt consolidation with the help of a bank, there are definitely other viable options.
Consumer Credit Counseling
Consumer credit counseling is a service that will help you by offering to advise you on how to manage your money and current debt. This includes offering solutions to the problems you're facing now with your finances and helping you develop a plan to become stable in the future. Credit counselors will examine and analyze your income and expenses and debt, and create a budget for you. This service should be personally geared to your situation. There are many services available, profit and non profit.
Debt Management Programs
If you're in over your head financially, a debt management program may be a great answer. Debt Management is a service provided by many Credit Counseling companies, that helps you pay your existing debt, usually over a 36-60 month term, with additional help in creating credit when your payments have been successfully completed. Debt Management Counselors should work with your creditors to negotiate reduce finance charges, late fees, monthly payments and your pay off period.
Trisha Dingillo has five years experience in the mortgage industry teaching people how to use their home as their best investment as well as how to pay off debt and clean their credit. She is the author of Ask-Debt Consolidation.com Visit her site to learn more about loans, paying off credit card bills and how to consolidate debt
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- Effective Strategies for Paying Off Your Mortgage Faster
- How Does Equity Release Work?
- Florida First Time Homebuyer: The Indispensable Guide of Tips, Programs, and Resources
- How to Become Debit Free?
- Sellers Concession the Closing Cost Option
- Financing Short Term rentals with DSCR loans
- Why move to Roseville CA
- Simple Interest Mortgage Advantage
- Are Low Doc Commercial Loans available in Australia
- How to Obtain a Rural Agriculture Loan Quickly and Easily
- What is a Caveat Loan?
- Tips for improving your Credit Score before getting a Home Loan
- 3 Things To Look out for With An Equity Release Mortgage
- Manage your Debts by Refinancing your Current Home Loan
- How to Get a Home Loan with Unusual Employment or Income?
- 20 Effective Debt Consolidation Loans Tips with Bad Credit
- Tips for Choosing a Non Conforming Lender
- Why is a Good Credit Rating Important in Australia?
- Most Common Ways That People Fall Into Personal Bankruptcy
- How to Choose a Consumer Credit Counseling Agency?
- Consolidate Your Debts and Take Control of Your Finances
- How to get a Home Loan due to a Bad Credit Report
- Debt Consolidation Home Loans are a Solution to Multiple Debt Problems
- Facts You Should Know About Low Doc Home Loans in Australia
- No Doc Loans from Private Lenders
- Home Loans to Consolidate Debt for People with Bad Credit
- How Can I Get a Mortgage If I Have a Bad Credit History?
- Guidelines to Fix Bad Credit Effectively Through Dispute
- Dealing with Debt – What to know about Debt Consolidation
- Investing In Yourself Before Investing in the Market