Debt consolidation involves securing a loan to pay off several other loans, which is sometimes a plan executed for the purpose of securing a lower interest rate.
This can be a good strategy in some situations; however, sometimes it involves acquiring a secured loan against a specific hard asset, which will serve as collateral.
Often this would be a home, and a mortgage would then be secured.
The collateralization of that mortgage would allow for a lower interest rate, since the risk to the lender is reduced.
Debt consolidation can sometimes be sensible, theoretically, when someone is going to pay down credit card debt, since it often carries a substantially higher interest rate than an unsecured loan issued by the borrower's bank.
Debtors who possess property, like a car or a home, might receive a considerably lower interest rate via a secured loan, utilizing their real property as collateral.
The total interest and payments toward the debt would then be lower, which would allow the debt to be paid off earlier, hence reducing the total interest.
Debt consolidation companies can sometimes discount the loan amount and, if a debtor is facing bankruptcy, a debt consolidator could purchase the loan at a discount.
Debtors can always shop around for companies that do debt consolidating as they may pass along a portion of the savings.
Any decision to consolidate should be carefully considered, since consolidation may actually affect the debtor's ability to discharge the debts in bankruptcy at a later date.
The title of debt consolidation company is often abused.
Many agencies will try to bamboozle consumers by labeling other services that collect your money as consolidating debt, when they really are not.
Real honest consolidation of debt is basically a service that a bona fide lender offers, which will actually pay off your loans, creating a new singular debt with longer terms and at a lower interest rate.
This should not be confused with a debt settlement or bill paying service.
It is, of course, imperative that consumers understand the vast difference between other so-called debt relief services and actual debt consolidation, in order to precisely weigh the best option for the specific financial situation.
Even companies that offer these legitimate services cannot guarantee that their particular program will, in fact, prove effective.
Even an excellent program can turn out to be a failure if the consumer does not follow through with a positive and well thought out long-term debt management strategy, since 70% of consumers who acquire a loan, for the purpose of paying off credit card debt, end up having equal or higher debt within a two-year period.
This can be a good strategy in some situations; however, sometimes it involves acquiring a secured loan against a specific hard asset, which will serve as collateral.
Often this would be a home, and a mortgage would then be secured.
The collateralization of that mortgage would allow for a lower interest rate, since the risk to the lender is reduced.
Debt consolidation can sometimes be sensible, theoretically, when someone is going to pay down credit card debt, since it often carries a substantially higher interest rate than an unsecured loan issued by the borrower's bank.
Debtors who possess property, like a car or a home, might receive a considerably lower interest rate via a secured loan, utilizing their real property as collateral.
The total interest and payments toward the debt would then be lower, which would allow the debt to be paid off earlier, hence reducing the total interest.
Debt consolidation companies can sometimes discount the loan amount and, if a debtor is facing bankruptcy, a debt consolidator could purchase the loan at a discount.
Debtors can always shop around for companies that do debt consolidating as they may pass along a portion of the savings.
Any decision to consolidate should be carefully considered, since consolidation may actually affect the debtor's ability to discharge the debts in bankruptcy at a later date.
The title of debt consolidation company is often abused.
Many agencies will try to bamboozle consumers by labeling other services that collect your money as consolidating debt, when they really are not.
Real honest consolidation of debt is basically a service that a bona fide lender offers, which will actually pay off your loans, creating a new singular debt with longer terms and at a lower interest rate.
This should not be confused with a debt settlement or bill paying service.
It is, of course, imperative that consumers understand the vast difference between other so-called debt relief services and actual debt consolidation, in order to precisely weigh the best option for the specific financial situation.
Even companies that offer these legitimate services cannot guarantee that their particular program will, in fact, prove effective.
Even an excellent program can turn out to be a failure if the consumer does not follow through with a positive and well thought out long-term debt management strategy, since 70% of consumers who acquire a loan, for the purpose of paying off credit card debt, end up having equal or higher debt within a two-year period.