Dealing with Debt: Consolidation

Sun, Oct 21, 2012

Financial Advice

Because of the economic crisis, many Americans have been forced to take out loans or make purchases on their credit cards in the last few years. Most people do not have access to cash savings and need to use credit in order to fund their lifestyle. This has created a situation of out of control debt for many people. Various loans and maxed-out credit cards can cause great financial hardship for many.

Credit cards usually have some of the highest interest rates on the market and contribute the greatest burden to this debt load. Some credit cards carry interest rates as high as 20 percent. A variety of bills coming in every month requires a deal of coordination to make sure they are paid on time. It is for this reason that the concept of debt consolidation comes as a relief to many. Being able to pay only one bill and usually at much lower interest rates, can make it much easier and faster to climb out of debt.

Debt consolidation basically involves taking out one loan in order to pay off many different loans. People are often able to secure a much lower interest rate on the new debt consolidation loan, as well as making it much easier to keep track of payments. There are two forms of debt consolidation loan available on the market today. One loan is called a secured loan and is only available by putting up collateral such as a home or car.

The other type of debt consolidation loan does not require collateral of any kind and is called an unsecured loan. A secured loan taken against your home involves taking out a mortgage and allows the lender to conduct a forced sale of your property if you fail to make payments. This allows the lender to recoup their money and provides a degree of safety for lenders. It is for this reason that secured loans can be obtained at lower interest rates than unsecured loans.

It is sometimes possible for debt consolidation companies to discount the amount of the loan. When debtors are in danger of bankruptcy lenders can buy the loan at a discount. Anyone thinking of obtaining a debt consolidation loan should shop around to find a lender who is willing to pass along the savings. Debt consolidation can affect the ability of debtors to discharge their debts with bankruptcy filings and this is one reason that any decision to consolidate should be carefully thought out.

Debt consolidation is ideal for people who have large amounts of credit card debt because the interest rate on cards is often very high. Credit cards have much higher interest rates than even those incurred with unsecured loans from banks. Paying lower interest rates allows debtors to pay off the principal owed much more quickly. When the principal owing is lower, it also lowers the amount charged in interest.

Anyone struggling with debt may wish to visit and do more research.

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