Simply put, debt consolidation means taking all your outstanding debt and rolling it into one lump sum for payment simplification. This can be accomplished with a debt consolidation loan, or by using a debt consolidation service (also known as a debt consolidation program credit counseling service).
This can simplify your monthly bill paying process. Instead of paying multiple bills, you’ll pay the service one payment per month. If you find it difficult to pay the minimum payments each month, or you repeatedly make late payments, you may want to request a free debt consolidation consultation. .
In general, Debt consolidation helps people get back on their feet, however, some forms of aren’t always as helpful as advertised. Unfortunately, a debt consolidation loan is the most common solution thought of when dealing with a financial problem. Sadly, approximately 75% of those who secure a loan find themselves in deeper financial trouble than when they began. A consolidation loan transfers debt from one place to another. It’s often a short term fix with long term consequences. It will not reduce the amount you owe. You will still pay back 100% of the loan plus interest.
A personal loan is granted for personal use and is often unsecured and based on the borrower’s integrity and ability to repay. If a bank grants you an unsecured personal loan, you could consolidate debt by paying off all of your creditors at once, and then making one payment to the bank each month. This makes it easier to plan out your payments each month and helps to avoid late fees.
There are several reasons why a personal loan isn’t always an ideal solution. For one, you need to qualify first. It’s not easy to obtain a personal loan for people with bad credit. personal loans for bad credit can lead to higher interest rates and stricter rules. Unsecured loans may be known as “signature loans”, whereby your signature represents your word to repay the loan. But bad credit loans may require ownership of real estate or a pledge of collateral. If this is the case and you miss a payment on your secured personal loan, you could lose your home or collateral. Bottom line: With a secure personal loan, you are exchanging unsecured debts for a secured debt – a big risk. Ask yourself, with your credit situation, could you qualify for an unsecured personal loan? If not, you are likely looking at a personal loan for people with bad credit. As previously mentioned, personal loans for bad credit will have higher interest rates, if you qualify. The repayment could take 10-20 years, depending on your debt. And you will still be repaying the full amount of your credit card balances with a personal loan.
There are also payroll loans. These are personal loans secured by your next paycheck. They are particularly geared toward those who apply for bad credit loans. There is no collateral for these unsecured personal loans for people with bad credit. However, the interest rates approach loan shark levels, at approximately 5-10% per week! This amounts to 200-500% annually! If you cannot qualify for a personal loan, are worried about rising interest rates, or want to avoid bad credit loans, a secured loan is another option to consolidate.
A loan is often secured by real estate or other collateral. Once you have taken out a secured loan, you have just exchanged your unsecured debt for secured debt. These loans are typically spread out over a 15 – 30 year period, leaving you open to the loss of collateral over this period. If you run into further difficulty in the future you stand to lose the collateral that secured the debt consolidation loan – often your home.
A large problem that consumers run into is: once their credit card debts are paid off following a debt consolidation loan, they suddenly have new spending power – empty credit cards. Unfortunately, it is not long before the cards are once again maxed out. Now you will have both the loan and the credit cards to repay. Remember, being in debt will leave you with less disposable income or worse, not enough to pay for life’s necessities. Although a loan may result in lower payments, it may still increase your total debt load. Ask yourself: is your goal to get out of debt or to prolong your situation for the next 10 to 30 years?
Another option is a debt consolidation service. They offer a program where your debts are consolidated into one monthly payment. While in the debt consolidation program, you’ll pay the service a fee as well as your total payments each month. The service then disburses the payments to your creditors. You should know that many of these services are funded by your creditors simply to collect payments from you. The more debt you put in their debt consolidation program, the fairer share your creditors will pay the service. Furthermore, a debt consolidation service will not always lower your interest rate, although that is the implied goal of a program. Understand that these services have pre-negotiated interest rates with your creditors. If the rate is lower than yours, your rate will be reduced. However, if the pre-negotiated rate is higher than yours, your rates may actually increase. Lastly, you are relying on a third party to make your payments for you. If the debt consolidation service is late or makes the incorrect payment, you will be penalized. While in a program, you will receive a mark on your credit stating you are paying through such a service. Many lenders view this as a negative, particularly mortgage lenders.
Depending on your situation, a better option than debt consolidation may be Debt Settlement, also known as debt negotiation. With our personalized debt settlement program, we negotiate on your behalf to eliminate your debt. Furthermore, in Debt Reduction, the amount of money you owe, the principal, is actually reduced versus debt consolidation where only the interest rate may be reduced. With a loan, you need to obtain a new loan in order to pay off your existing debt. If you have too much debt and/or bad credit, it is unlikely that you would qualify.
A competent debt reduction company can help reduce your debts to a manageable level, so you don’t have to apply for a new loan or join a debt consolidation program. Find the Right Debt Relief Solution, Start with a FREE Debt Analysis Call Toll Free (888) 987-1325
Author bio: M. Thompson, a graduate of the University of Phoenix; has 20 years’ experience in Finance with 11 years in Debt Relief and understands how credit affects people’s lives. Learn more about debt consolidation alternatives through Nationwide Debt Reduction Services. Nationwide Debt Reduction Services is your preferred choice in debt relief.
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Find the Right Debt Relief Solution, Start with a FREE Debt Analysis Call Toll Free (888) 987-1325