Debt consolidation facts
February 6, 2006 | In: Guest's Articles
Debt consolidation means taking a loan to pay off other loans and reduce the severity of repayments. It enables a debtor to combine all the debts into one and make one monthly payment to a single creditor instead of several payments to several creditors. However, one of the debt consolidation facts remains that the debtor has to put up collateral like a house to get the loan. Failure to pay the loan gives authority to the creditor to forcibly sell the house or other mortgaged assets.
Three common ways of debt consolidation are: taking help of credit counseling companies, balance transfer and taking debt consolidation loans. The credit counseling companies negotiate with creditors to lower monthly payments, reduce or eliminate interest rates or eliminate late fees.
Balance transfer is used to reduce the severity of credit card payments. The high interest rates charged by credit card companies become more and more pressing with time. Debt consolidation allows the debt to be transferred to a credit card that charges a lower interest rate.
The third is to take a debt consolidation loan from a bank, finance company or credit unions. These loans can be both secure or unsecured depending upon the size of the loan and the repayment capacity of the debtor.
However, debtors must be on guard when they seek debt consolidation loans. Flashy advertisements are used to lure customers with the promise that it could be their ultimate answer to debt freedom. A customer, who is burdened by mounting debts, will find such ads too tempting.
The debtors should carefully evaluate the interest rates associated with the debt consolidation loan. At times, there are high consultation charges or fee associated with debt consolidators’ services. The debt consolidators, as a matter of fact, are no wizards but professionals who try to negotiate and bring the interest rates down and lower monthly payments.
Finally, all debtors must realize that the only way to get out of debt is financial discipline. No amount of debt consolidation will help if they continue to splurge.
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