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 most consolidation loans come with interest rates and monthly payments that are lower than your original debts — particularly credit card debt. By incorporating these debts into a low-cost consolidation loan, your overall level of debt is reduced, and anxious creditors and collections agencies will begin to leave you alone.
Consolidation is often achieved through a second mortgage or a Home Equity Line of Credit (HELOC), or through some other type of secured loan. Obtaining a secured loan typically requires that you offer your own property as collateral, which means you’ll lose that property if you default on the consolidation loan. But if you can make your payments on time, you will benefit from having a single, low monthly payment.
Before You Consolidate Debts. . .
As many of us know, unpaid debts don’t go unnoticed for very long. Once a couple of payments are missed, creditors will start contacting you and may even place your account in collection. The best advice is to contact your creditor as soon as you realize that you are unable to make payments. This means calling your bank or credit card company to fill them in on your situation. Explain to them the difficulty you're 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 owed. If your creditors agree to a payment plan that works for you, then you might not need to obtain a debt consolidation loan. But if you continue to experience difficulty making payments, you face the likelihood of your account being turned over to collections agencies. It's in your best interest to try to avoid this by communicating with your creditors and consolidating your debts before the problem becomes too severe.
Finding Debt Consolidation
You can find debt consolidation loans through a number of sources. The Federal government offers Direct Consolidation Loans to people who want to combine their government-backed student loans. Debt consolidation services are also offered by numerous financial institutions. However, certain institutions are more reputable than others — so it's important to do some research before you jump into debt consolidation. Do not give out your personal financial information until you're sure you've found a trustworthy company. You can also check with the local Attorney General or the Better Business Bureau (BBB) before proceeding. These resources can help you make an informed decision about a company's reputation. It's recommended that you do everything you can to be well-informed about debt consolidation programs.... Understand your rights. Understand the fees that you are facing. And understand the consequences if something goes wrong.