Debt Consolidation
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What is debt consolidation? Debt consolidation is the combining of multiple debts, with multiple interest rates, into one loan with a single interest rate. How does debt consolidation work? Debt consolidation involves combining all of your debts into a collateralized loan. The collateral used is usually, but not always, a home or some form of property. By collateralizing the loan, you get a lower interest rate. Lower interest rate means that payments are used to a greater degree to reduce the principle of the loan.
The loan is also stretched out over a long period of time. The combination of a lower interest rate and spreading the loan out over a longer period of time, results in lower monthly payments.
The lender is able to provide a lower interest rate because of the collateralizing of the loan. When a lender takes less risk, then the interest rate can be lower. Just remember that your debt will never go away, and it still needs to be paid, but paying off that debt will be made easier with debt consolidation. Also, a 50% reduction in your monthly payment can be seen after debt consolidation.
There is a misconception among many customers in that they think at the onset of debt consolidation, the amount of their total debt has decreased. It is true that a greater amount of your payment goes towards reducing the principle of the consolidated loan, and therefore over time you will see a reduction in the principle of the loan, but what you owe creditors at the onset of the consolidated loan has not changed. No one or any single entity can change that.
With debt consolidation, even though your interest rate is lower, you will most likely be making payments for a longer period of time, and in the end the total interest you paid for your loan could be higher. This does preclude the fact that debt consolidation is in many cases a viable means by which to reduce your monthly financial stress. Some people do not mind paying less interest for a longer period of time. Also, some people do not mind paying a monthly fee to the consolidating company so that they can get their head above financial water.
What type of financial situation is more ideal for debt consolidation? Debt consolidation works well for unsecure debt such as credit cards, personal loans, and medical bills. Their are definitely situations where debt consolidation would reduce your current financial burden. Because a popular form of debt consolidation is used for the consolidating of credit card bills, lets examine this form of debt consolidation further.
When you only make the minimum payment required by the credit card company, and you continue to use your credit card, you will quickly build up a large debt. People who have been unable to control their credit card spending, would benefit from debt consolidation. Ideally, credit card debt should be paid off in full when receiving your first bill, but most people do not do that, which results in a large build up of debt. Debt consolidation can reduce the monthly financial burden from credit cards.
Over the past ten years, debt build up through the use of credit cards has increased tremendously. There are most likely many reasons for this, but one major reason is that today, it is very using to use a credit card when making an online purchase. You do not even need to leave your home to use a credit card. A few clicks of the mouse and the product comes to your door step in a matter of days. This credit card convenience has resulted in more people building up credit card debt. On the other hand, the Internet has made it easer to find a debt consolidator.
One of the draw backs to using debt consolidation for reducing credit card monthly payments, is that it increases the spending limit allowable on the credit card. People who are unable to control their credit card spending may continue to spend more beyond their income, which leads to even greater financial stress down the road. So if you really want to consolidate your credit card payments into one payment with low interest, you need to change your life style by using financial commonsense, practice prudent spending, and not put yourself deeper into a hole, which you may never get out of.
Another popular area of debt consolidation is the consolidation of student loans. The consolidation of student loans occurs differently from the normal method of consolidation. In a federal student loan consolidation, current loans that the student may have are purchased by a loan consolidation company or by the Department of Education. Interest rates for the consolidation are based on that year’s student loan rate.
Another draw back to debt consolidation is that, as previously mentioned, you need to pay a fee to the consolidating company. After all they are in the consolidating business to make money. The problem is the fee they charge is in many cases, the highest allowable by law.
Therefore in the end, because you are paying a lower interest for a longer period of time while concomitantly paying a fee to the consolidating company, you may end up paying more to pay off your total debt. The consolidating companies are very competitive so the prudent shopper will look for those companies which have a lower fee.
In summary, the advantages to debt consolidation are:
- You can combine all your payments into one easy payment.
- You can see up to a 50% reduction in monthly payments.
- Your interest rate will be much lower, because the lender is taking less risk.
- With debt consolidation, more of your payment goes to reduce down the principle of the loan.
- The consolidating company negotiates on your behalf with the lender for the lower interest rate.
- The payments can be stretched out over a longer period of time.
- You can have extra cash available per month, reducing financial stress.
- Eliminate creditor harassment.
- Allows you to improve your credit rating.
- Because you are using your home as collateral for debt consolidation, the interest you pay is tax deductible. You can take advantage of this benefit if you itemize your deductions on your tax form, rather then using the standard deduction.
In summary, the disadvantages to debt consolidation are:
- Even though the amount you pay per month is less, you still need to pay a monthly fee to the consolidating company, and with the term of the loan increased, this can be a substantial amount of money.
- The fees charged by the consolidating company are usually the highest allowable by law.
- If the loan is stretched out over a longer period of time, even though the amount of interest you pay per month is low, you still may end up paying more total interest by the time the loan is paid off.
- Debt consolidation requires real and substantial collateral, which is usually the property you own. The new loan produced by the consolidating company is secured by a lien on your home and this means the lender can foreclose on your home if you default on the loan.
- It is easier to go further into debt because you will have extra cash available. For people who have trouble controlling their spending, this is not a good thing.
- While consolidating credit card debts is a good idea, many times it makes more sense to move all your credit card debts to your lowest interest rate card. This sometimes is easier then going through the process of debt consolidation.
So as you can see, there are advantages and disadvantages to consolidating all of your debts into one payment. What we are providing you here is the facts about debt consolidation. We are not biased for or against debt consolidation, and only you can make the appropriate decision which meets your unique needs.
NetDebt-Online Debt Solutions
The following is a comprehensive list of debt consolidating companies, with descriptions.
Debt Consolidation - Companies
CareOne Credit Counseling
Description:
Over 4.5 million people have turned to CareOne service providers for help with their debt. Have developed relationships with over 220,000 creditors.
Credit Solutions
Description:
They are the leader in the debt settlement industry, managing over 1.2 billion dollars of debt for their clients. More than 70,000 people have used their service.
American Financial Service
Description:
Through the established relationships that they have with the creditors and financial institutions, they are able to successfully negotiate the debts of their clients at a substantial discount.
Clear Debt Solution
Description:
A California based corporation, Clear Debt Solution is an industry leader in debt settlement services.
Counsel for Debt Solutions
Description:
They are committed to providing the most advanced technology in servicing their clients and their creditors.
USA Debt Consolidation
Description:
Their Debt Repayment Representatives can talk you though any questions or problems you might face and determine a plan that is right for you.
USDebtReduction.com
Description:
They have helped hundred’s of individuals overcome the burden of debt through their tested and proven team approach.
DebtConsolidation.com
Description:
Provides debt consolidation, settlement and relief, and credit card counseling.
MortgageLoan.com
Description:
They help consumers get the best loans and provide debt consolidation. MortgageLoan.com online Since 1995.
My Debt Consolidation Advice
Description:
Supposedly free debt consolidation advice to combine credit cards and loans to save money.
Federal Debt Management Services
Description:
Offers a national consumer debt consolidation program as an alternative to filing bankruptcy.
Consolidated Credit Counseling Services
Description:
Founded in the early 1990s, is an industry leader in providing credit counseling and debt management programs throughout the United States.
Christian Debt Consolidation
Description:
Christian debt consolidation services are provided by fully qualified experts who will take all of the debts that you have and put them all into one lower payment for you.
UFS Debt Consolidation
Description:
UFS Debt Consolidation delivers personalized and professional debt consolidation for credit card debt.
American Debt Resources
Description:
ADR’s primary objectives are to provide clients with a tailored debt management program that is suited toward their specific financial profile.
DebtHelp.com
Description:
DebtHelp.com is the one site and the one solution for all of your debt consolidation needs.
LendingTree
Description:
LendingTree is the leading online lending and realty services exchange that empowers consumers. They provide debt consolidation.
Debt Consolidation Union
Description:
Debt Consolidation Union offers solutions to help you consolidate debt, lower your monthly payments, and get out of debt faster.
If you are a debt consolidating company, you have a website, and you are not on the above list, go to our about page and send us an email with your URL and we will include your company on the above list.
Debt Consolidation - Conclusion
Here we have looked at the advantages and disadvantages to debt consolidation. The facts provided here should help in your decision making process, when determining if debt consolidation is for you. Many people prefer to decrease their current financial burden by consolidating their payments into one easy payment. Some people prefer to not do this because if the term of your consolidation loan is longer than the terms of your smaller current loans, and usually this is the case, you may end up paying more total interest even if the interest rate for the consolidated loan is lower.
Some people do not want to make an extra payment per month to the consolidating company. No matter how you look at it, you still need to pay what you owe. Debt consolidation simply provides a different method to pay off your debt. Remember that debt consolidation only treats the symptoms of debt, and it does address the root problem. The best road to take is to not build up an enormous amount of debt in the first place, but if you do, debt consolidation services are available for you. Only you can decide if debt consolidation is right for you.
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Debt Consolidation - Videos
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Debt Consolidation - News
Free Reprint Articles: Finance | Debt Consolidation
Debt Consolidation articles from Free Reprint Articles
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There are several sources of debt consolidation loan information. You can obtain a list of debt consolidation loan options from the internet if you want. Getting a referral is an excellent way of getting a debt consolidation loan that works.
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This is because they have experience, dealing with people with bad credit or poor credit, and thus can decide which plan will suit the debtor the most. Another reason people love to consolidate credit card debt is to make their lives simple. The important thing is that you get out of debt and give yourself the fresh start you have been dreaming of
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Your parents could give you a much lower interest or better yet, no interest at all. Next see how much money you are spending on versatile essential items. Making management easy is the first realistic step towards debt solution
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Benefits Of Consulting With A Non Profit Debt Management Firm
In the present days a large number of people are searching for a financial expert who can help them to know the ways of refunding the huge debts. These bad debts occur when a person takes a loan at a high rate of interest and later fails to repay it. A significant number of the U.S residents are frustrated of their huge debts but most of them had not taken any measure for refunding these debts. People in most of the cases cannot get rid of their debts as they do not have proper guidance. To repay the debts within a short time and to reduce the interest rate a person can visit a reputed non profit debt consolidation service.
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Are you over fraught with amount outstanding. Are you not able to master debts. Do you want to pass up liquidation or arrears
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Consolidation will not affect the right to forgiveness for Stafford loans. There are students who enroll in a work study program and try to pay their way through college. Many private lenders too have followed suit offering similar packages with of course a little higher interest rates than in the case of federal loans
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