Debt Consolidation Definition
These days, more and more people are dealing with a great deal of debt. This is leading to many people looking for a means of getting out of their debt situation. One such method that is commonly employed to deal with such issues of debt is the process of debt consolidation. Now, some may have an idea in their head as to what debt consolidation entails but their opinion is not always accurate. This is because they often confuse debt consolidation with a consolidation loan. The two are not the same entity.
A consolidation loan simply involves getting a single loan to pay off several smaller loans. This allows the borrower to get greater control of a budget thanks to the requirement of only having to pay one monthly premium. However, for those who may be in severely bad financial shape, being approved for a consolidation loan may be impossible. Also, a consolidation loan does not deal with a number of serious financial issues related to the individual’s financial situation. For those who may be having serious financial difficulties to deal with, a debt consolidation plan may be a much wiser option.
It is when you replace multiple loans with a single loan. Why would you want to do this? Well, there are many good reasons to undergo debt consolidation.
First of all, when you consolidate your loans, you make one payment each month instead of multiple payments. If you are not good about budgeting your money, this can keep you on track. More importantly, the debt consolidation company may be able to secure better terms with each creditor in order to lower your monthly payments. They may be able to reduce your principle amount, for instance.
Further, they will issue you an umbrella loan at a low interest rate. Often, people are sucked into “teaser” rates on their credit cards that balloon up to nearly 20 percent after 6 months. Your consolidated loan may be in the neighborhood of 5 to 7 percent.
There are two very different kinds of debt consolidation–one that requires a loan and one that does not. And there are two frequently used types of loans for debt consolidation. The first is a home equity line of credit. You must be credit worthy and own a home to qualify for this type of financing.
The second type of debt consolidation loan would be to transfer all of your credit card balances to a low interest or 0% interest credit card. If you continue to use the old credit cards you are defeating the purpose of transferring your balances. You will have more debt than before. You credit will have to be good enough to qualify for the new credit card.
It’s not unusual for someone to incur debt. Even the richest do. After all, it’s not all the time that you have the immediate funds to settle certain financial obligations. Debts, in forms of loans, also allow you to purchase certain needs of your family, such as a home.
The problems start to set in, however, when you can no longer manage your debt properly. This can happen when you’re spending more than what you earn. Because your income will never be able to sustain payments to your debt, you are in a terrible financial burden. Worse, you can even go on default, a potential candidate for foreclosure.
Do your Research!
Make sure you know both the ins and outs of all the fees having to do with the services provided by the respective company or agency. READ ALL FINE PRINT, I cannot stress this enough, if something does not make sense make a call or search the site for a definition of said line, most companies will offer a free consolidation session so it is smart to ask there if something does not make sense this step can keep you from getting snared by the companies who wish to do harm to you rather than good. Do that before you sign the document binding you to this agreement. During that consultation I spoke of earlier be sure to ask as many questions as possible (like what can this company can do for me) to acquire that the company knows what they are doing. This way you can ascertain their ability to provide you with proper customer service.
Final Tip: By researching and comparing the best credit card debt settlement services in the market, you will be able to determine the one that meets your specific financial situation. Nonetheless, it is advisable going with a trusted and reputable debt counselor before making any decision, this way you will save time through specialized advise coming from a seasoned credit card debt advisor and money by getting better results in a shorter span of time.