Advice on Debt Consolidation
Debt Consolidation Debt
Debt consolidation is the process of having just one loan to pay off several other loans. The main reason for this process is to reduce your monthy payments by using a lower interest rate loan, plus you also have the advantage of having only one lender, instead of many.
Debt consolidation companies may also discount the amount of the loan – always ask for this!. If you are in danger of bankruptcy, the debt consolidatation company may buy the loan at a discount. Be smart, it is your money! and shop around for the best deal and for a company who will pass along some of the savings.
Is it wise to arrange a consolidation loan Yourself?
Basically loan facilities undertaken are most economical method or initializing this useful debt management service, however they do require a certain level of thought and good management and always require that you arrange for one or more creditors to accept you to take over your existing loans
The new loan company also requires you to make regular monthly payments, without missing any! Your reliability is of utmost importance here. Never miss a monthly repayment or you will be in more trouble that you were initially.
Counseling Services for Debt
A debt counseling service is where you meet the councellor and give him or her all the information about what you owe, and who you owe it to. They will then negotiate on your behalf with your existing loan companies and source and apply to the new consolidation loan company on your behalf.
The worst debt consolidation decisions to make;
A loan balance transfer to lower interest rate:
These are always a short term thing. The low interest rate will only last a defined period and then revert back to the normal rate, or even a higher than normal rate!
If you keep moving your credit card debt balance from card company to card company, you will eventually have more activity than desired on your credit history, and therefore lower your chances of being accepted for a loan in the future. This is NOT an ideal choice.
Finding a Debt Consolidator who says he will look after everything:
Most consolidators earn their living by taking their fees from a percentage of the arranged monthly payments. These fees can vary from 5% to 10% of your new payment which is quite a bit of money to contribute to the advisor!
It should be known that you actually pay your monthly payments to the consolidator, and not directly to the loan company. Just think of the risk if he or she does not pass on the payment to the loan company! – in this case you will be even worse off, for missing more payments.
It therefore begs the question, should you arrange it all yourself? and save even more money by negotiating directly for lower interest rates, longer terms etc from your existing card / loan companies.
A Hard Money Loan:
Most people are under the misconception that a debt consolidation loan is quite easy to get. The fact that you are most likely already missing your monthly payments to your existing card or loan companies makes your credit score bad. Because of this you are classed as a high risk customer and the new loan company may advise that they can lower your montlhy payments, but in doing so, can charge you very high interest rates which means you could be paying off the loan over a much longer period that you had originally intended.
(a “Hard Money” loan is an asset based loan which is most likely secured on property which you own. They are almost always at a much higher interest rate than a normal bank loan. They are usually never issued by a high street bank, but from other lending companies.)