Debt consolidation describes the act of obtaining a new loan to settle various other responsibilities as well as consumer debts. It involves either taking out a secured loan, which is based on collateral, such as property or a house, or an unsecured loan, which is based on good credit.
Debt consolidation also entails the usage of mortgage refinancing or home equity loans. In debt consolidation, loans are secured against collateral.
Making Use Of Debt Consolidation
When people consider using debt consolidation they are thinking of taking out a loan to pay off other consumer debts. This is also called consolidation of loans. Those who get them are required to clear their debts with the loan, which results in paying off the debt with a lower interest rate.
In doing so, they would have only a single liability, and that liability is to the debt consolidation company. While some people refer to them as a “clean slate”, it should be remembered that they will have a new liability: the one they have to pay the debt consolidation company every month.
While they are considered a change in liability, people will not lose their existing liabilities, because the loan is secured against property. Still, it is possible to be affected by a failure in the payment of the loan, because the debt consolidation company will not allow the debtor to re-borrow its money and pay off the loan.
Also, there is a risk of losing the property which is the house. However, those who have debts in excess of $10,000 or have a bad credit history, should not get a debt consolidation loan. They are considered a high risk.
It is possible to save some money when people decide to consolidate their consumer debt. In doing so, they have to weigh the advantages of getting the loan against the risks of failing to pay it and losing their assets.
If people’s money is not a danger, they should seek the options of settling the consumer debt with the creditor directly or taking the matter to court. Also, a settlement is cheaper and faster, as the money is not taken from the debtor’s salary and will become available as soon as the case is over.
Saving Money With Debt Consolidation
It is possible to save more money when people decide to consolidate their secured loans, like car loans, credit cards, home mortgages etc. In that case, they should seek the consolidation loan from the creditor to the minimum amount. They should ask the creditor for a lower interest rate and ask them to waive any late payment fees.
Thereafter, they should ask for a lower monthly payment, so that they can pay off their debts. In the meantime, they should repair their credit. Also, since they have already paid part of the loan, they should think about the option of a lower interest rate.
In fact, they should save their money and work towards repairing their credit. However, it is necessary to repay their consolidated debts as soon as possible.
However, it is possible to save their money when they decide to consolidate their unsecured debts, like their utility bills, their airtime, their life insurance etc. Since they have already paid their utility bills, they should request their company to issue a statement so that they can know if there are any outstanding debts in their name.
In that case, they should repay their utility bills. They should take the measure of their debts with the help of a budget planner. Also, since they have already paid their life insurance premiums, they should seek the help of a savings planner so that they can repay their life insurance premiums.
It is possible to save their money when they decide to consolidate their secured debts, like their mortgage etc. Since they have already given their house as security, they should seek the help of a consolidation company so that they can repay their secured loans. They should repay their secured loans in an easy and affordable way.
https://en.wikipedia.org/wiki/Debt_consolidation
