If you’ve been hit hard by job loss, credit card debts, tax debts or medical expenses then debt consolidation could be of great help to you.
What Is Debt Consolidation
Debt consolidation is the process of taking out one loan in order to pay off other loans. Debt consolidation can be an effective way of managing debts because often consolidation loans come with interest rates and monthly payments that are lower than that of your original debts, particularly credit card debt. By consolidating these debts into a low-cost consolidation loan, your overall cost of debt is reduced and anxious creditors and collections agencies will leave you alone.
Consolidation is often achieved through a second home mortgage or through a (HELOC) home equity line of credit or through some other secured loan. Obtaining a secured loan typically requires that you offer your own property as collateral — you’ll lose that property if you default on the consolidation loan. But if you make payment on time, you’ll benefit from having a single, low monthly payment.
Before You Consolidate Debts
Unpaid debts don’t go unnoticed for very long. Once several payments are missed, creditors will contact you and may even place your account in collection.
As soon as you realize that you are unable to make payments, contact your creditor. Call the bank or credit card company to let them know your situation. Explain to them the difficulty you are having in meeting your payment obligations. Try to work out a payment plan while reassuring your creditors that you fully intend to pay the debt.
If your creditors agree to a payment plan that works for you, then you might not need debt consolidation. But if you continue to experience difficulty making payments, you face the possibility of your account being turned over to collections agencies. Try to avoid this by consolidating before the problem becomes this severe.
Finding Debt Consolidation
You can find debt consolidation through a number of sources. The government offers consolidation of student loans via the Direct Loan Program. Consolidation is also offered by dozens of finance companies.
Some of these companies are better than others. It pays to do some research before you jump in to consolidation. Do not give to any agency your personal financial information until after you have done the proper research to determine if they are a reputable firm. Check with your local attorney general’s office or the Better Business Bureau before proceeding. These offices can help you make an informed decision about a firm’s reputation.
Finally, do everything you can to be well informed about debt consolidation services. Know your rights. Know the fees that you are facing. And know the consequences if something goes wrong.