Debt Consolidation FAQs
Debt consolidation FAQ was created to help you, the consumer through the minefield of companies and individuals that claim they have all of the answers for you. It is important that you realize there are certain pros and cons concerning debt consolidation, and they will vary from case to case and between individuals. Before agreeing to any type of program you should seriously consider how it will affect you in the short and long term. With that said…….
What is debt consolidation?
Quite simply, debt consolidation is taking all or most of your outstanding debt and combining that into one payment. This can be done in a variety of ways including home equity loans, secured loans, and unsecured signature loans. Secured debt consolidation loans, secured by assets the borrower may own are typically the easiest form of loan to qualify for. Of course the lender will ask you to put up collateral for that loan in the form of property, vehicles, jewelry or anything of value that could cover the loan should you default.
If you are still in a situation where your credit is solid you may be able to qualify for an unsecured loan but the larger the dollar amount you borrow, the more likely it will be that the lender will still want some form of collateral.
Why You Should Consider consolidating:
1. These loans can help you salvage your credit standing before it is too late.
2. With a bit of collateral these loans can be easy to qualify for. Lenders will typically accept real estate, retirement funds, stocks and bonds as collateral.
3. You will likely be able to avoid bankruptcy
4. All payments are consolidated to one monthly statement
5. By having some “skin in the game” your collateral will likely afford you a lower interest rate overall
6. Piece of mind knowing your creditors will stop hounding you for money
Potential Pitfalls Of Consolidating:
1. If you default on the loan, your pledged assets will go to the lender to pay your debt off.
2. Typically the time frame to totally pay off your loan will be extended pretty substantially.
3. You may be responsible for penalty fees to your creditors during the application process
4. You will likely end up paying more in interest by the time it is all over.
5. Many people find themselves back in debt quickly do to easily accessible money.
6. You may take a hit to your credit score based on whether or not some of your principal was forgiven on certain loans
So, Should You Or Shouldn’t You?
Debt consolidation faq hopes to have opened your eyes to some of the pros and cons associated with debt consolidation. Many people think they have no choice but to consolidate but that is not always the case. If you take the time to sit down and actually do a budget, you may find that you can dig yourself out of the hole with a little sacrifice and monetary discipline.
However, if your debts are keeping you up at night or if your debts are more than your income, you have limited choice. Of course you could file bankruptcy buy that will haunt you for far longer than a minor hit on your credit for a consolidation.
If You Decide To Consolidate:
If you are going to attempt to consolidate your loans, don’t just go with the first company you talk to. Shop around and talk to a few people and companies. This will end up being one of the most important financial decisions you make so you should not take it lightly. Many people feel defeated, embarrassed and dejected when they get to this point and they let people convince them that they have to take “their offer”. Realize that there are millions of people in this economy in the same boat and you do not have to feel bad about your decision. Treat it as if you were buying a home.
Debt Consolidation FAQ – Questions To Ask A Potential Lender
What will they do for me?
Are they going to give me a loan or are they going to actually combine all of my payments and handle the payments for me?
What Are The Fees?
Will they charge a flat fee? A monthly fee? Or will they be charging based on a percentage of the loan?
Are They Certified?
Are they members of the National Association of Certified Credit Counselors, The National Foundation for Credit Counselors, or the Association of Independent Consumer Credit Counselors?
What Kind Of Debts Will They Consolidate?
Most companies can help you out with non-secured debts such as medical bills, collection accounts, and credit cards. If the company says they can help you with secured loans such as your car loan or mortgage, be cautious.
Can You Terminate The Agreement?
Can you end the agreement? You should be able to terminate your agreement at any time without any penalties. The exception being of course if you’ve taken out a loan. Find out what the company requires of you to end the agreement and get it in writing.
Americans Buried In Debt
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