What is debt consolidation?
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Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.
Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.
Story credit: Wikipedia en.wikipedia.org
This is a list of 5 questions about debt consolidation
1. Should I get a debt consolidation load?
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Consumer advocate radio show host Clark Howards thinks most people are kidding themselves when they spring for a debt-consolidation loan:
It's been my experience that when people do a debt-consolidation loan, all they really end up doing is rearranging the deck chairs on the Titanic. With one transaction, their credit card bills suddenly stop, and those people then say, "Oh, how nice, it's all so tidy now, I now just have everything on one convenient bill."
However, human nature being what it is, most of those very same people will then go and again charge their credit cards back up to where they had been. They'll then have those bills and the bill from their debt-consolidation on top of that, and then what they've created is actually much worse than the initial problem they had.
Story credit: Clark Howards on the Consumerist consumerist.com
2. What happens to my credit rating if I get a debt consolidation loan?
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Debt consolidation only works if you manage it correctly, but even doing the right thing with your debt consolidation payments can damage your credit score temporarily. An important part of your credit score is the amount of credit you have available to you and what percentage of that credit you are using. If you close your accounts after you pay off your debts, you will reduce the amount of credit you have, thus lowering your score.
If you leave the accounts open, however, you may be tempted to use them again. You could end up with paying your debt consolidation loan payments plus charging up all of your cards again.
If your accounts are in default, then paying off your accounts can improve your score. That benefit can easily be squandered if you don't manage your consolidation properly. Consider seeking personalized advice on better managing your credit and whether or not you should close your paid off accounts from a non-profit credit counseling service or your bank. This short-term fix for getting out of debt only helps your credit score if you avoid getting back in over your head.
Story credit: Happy Living Magazine www.happynews.com
3. Can I apply for a debt consolidation loan on-line?
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Debt consolidation apply online
Consolidating a debt is the easiest way for the borrowers as well as the lenders of the loan in order to simplify the task they are going through. One can easily consolidate the debt along with a loan from Debt consolidation loans. This helps them to get their finances back under the control. Consolidating the debt refers to consolidating the present loan or debt in to a single loan. This facility helps to provide the borrower to make only one single payment at a very low ARP. Not only this it provides many facilities to the borrowers which attract them to go for consolidating the debt or the loan.
It provides with the reduction of half of the monthly outgoings of the borrowers. One can easily access with storing the card debt as well as paying off their expensive credit. Due to this facility we can manage to replace many of our payments in one regular payment. With this our finances are simplified and the workings under this are done more smoothly as well as efficiently. Under this we get our finances as well as the life back under control. These loans provided are secured on all the properties.
Arranging for a loan is not that easy work but online application makes it simple as well as the easy task to be operated. There is no requirement of interviews as such. One can easily get access to this by applying online with the help of quick application form under which it is required to fill the details as well as the telephone number so that the upcoming information's are updated to the borrowers. Alternate to this online has the provision of long application form, with complete information that is required by the borrower.
With respect to this they provide the borrowers with the Approval in Principle within a time period of one hour. This is the easiest way to get access to debt consolidation loan within no time. Though they are providing with lots of facilities but with this one needs to be eligible to have the opportunities provided. To apply and get access to this one must be above the age of 18, He should be a permanent resident of a country along with a homeowner.
Debt consolidation loans are even provided to the people who are not a homeowner with a unsecured personal loans for tenants. It has the provision of the payment protection for the one tends to lose their jobs as well as who are off work due to accident or sickness. It easily can cover with the accidents, sickness, involuntary unemployment or even the life cover. Payment protection is generally recommended when are applying for a loan.
When applying for a loan from debt consolidation loans, a bad credit has not been a problem. As all the solutions are provided as well as the applications are treated for bad credit loans. Not only has this it offersthe with a bad credit history at very competitive rates. Unlike any other high street lenders, they offer with the suitable loans wherever possible. Even when the loan is rejected by the borrower in the past can go for the loans when required.
Story credit: Sofia News Agency www.novinite.com
4. Can I apply for a debt consolidation loan if I have bad credit?
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Like other secured loans, borrowers have to pledge collateral against a secured bad credit debt consolidation loan and can borrow an amount which is calculated on the value of the collateral.
On the other hand, no collateral is required to apply for unsecured bad credit debt consolidation loans, when applying for these loans borrowers have a much greater say in how the loan is structured, shortening the term, or extending it to suite. However they are more difficult to obtain and the interest rate will be higher than that of a secured loan.
At the same time, one also has to be aware of his credit score before applying for a bad credit debt consolidation loan. Generally, a credit score is the estimate of a borrower’s financial credit value. The range of a credit score or FICO is normally from 300 to 850. And a credit score, whether it is good or bad is decided on the basis of this range. If one’s credit score is 580 or below, then his credit score is considered to be a bad credit score.
There are several reasons why you may have a poor credit score, like defaulted payments, bankruptcy, arrears etc. So, checking credit scores first of all is very important. There are several credit reporting companies that help borrowers to get a copy of their credit report, but it is wiser to contact the three credit bureaus directly (Experian, TransUnion and Equifax) as you are entitled to a free credit report from each, once every twelve months.
Nevertheless, debt consolidation loans are not always the best option for everyone with bad credit. If a borrower’s debt is $10,000 or above, then these loans can be beneficial, less than this and you would probably be better of with an alternative method of consolidation, also if your debt is low interest debt there would be no real benefit in using a debt consolidation loan; for example; consolidating low interest rate loans, like student loans would not be very helpful but for high interest credit card debt it would be quite the opposite!
Debt consolidation loans are a good option for those looking to reduce outgoings and regain control of debt and, for one reason or another, have a bad credit history. But one should always be aware that failure to repay the loan amount, instead of improving a credit score, will in fact make it a whole lot worse not to mention that it will increase a debt burden even further.
Therefore, individuals are advised to check their ability to make repayments at first, and then, once happy that they can afford them, apply for a bad credit debt consolidation loan.
Story credit: Web Raydian articles.webraydian.com
5. What types of debt qualify for debt consolidation?
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There are two categories of debt: secured debt and unsecured debt. As opposed to secured debts in which a creditor holds collateral to ensure the debt gets paid, unsecured debts require no form of collateral from the borrower. In the event that an unsecured debt goes unpaid, the creditor cannot seize your belongings as payment. This includes placing a lien on your home or vehicle. Unsecured debts typically have higher interest rates than secured debts due to a higher risk of nonpayment.
Credit Cards
Credit cards are the most common form of unsecured debt. A credit card account is considered revolving debt, because as you pay down your balance, your available credit "revolves" back into your spending limit. Credit cards are a particularly dangerous variety of unsecured debt because they allow you to make large purchases while paying very small minimum payments. When high interest rates and finance charges are taken into consideration, you can easily end up in a situation where your minimum payment is less than the interest charges and fees that accrue every month.
Personal Loans
Banks distribute a variety of loans such as mortgage loans, home equity loans and car loans. Banks also, however, are the primary distributors of personal loans. A personal loan is an unsecured loan granted to you by a bank on the basis of your credit history. There are no stipulations on how you must spend a personal loan. When you apply, your lender will evaluate your past credit history to determine how reliable you are about paying your debts. A good history of timely debt payment is required for a low interest rate on a personal loan. Unlike credit card debt, personal loans are considered installment debts because they must be paid back in set installments by a certain date.
Medical Debt
Medical debts are any debts you accrue for medical services. Emergency room visits, lab work and dental work are all considered medical debt. If you have insurance, you are only responsible for the medical debt your insurance company does not cover. While an individual must be an adult to qualify for a credit card or a personal loan, minor children can accrue medical debt. Children cannot be held legally responsible for the debts they owe, therefore a child's parent or guardian is responsible for paying his medical debts.
Story credit: eHow www.ehow.com
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