Debt consolidation is the tactic debt settlement companies propose to eliminate multiple debts. It’s a wise strategy of servicing piled up car loans, credit card loans, real estate mortgages, and student loans, among others. Through it, debtors – individuals or small businesses – may secure reduced or fixed interest rates, have faster repayment time, be provided the convenience of attending to a single loan, and importantly, avail up to 50% discount on their dues.
Debt Consolidation 101
Debt consolidation is an effective debt management approach – regardless of the kind of debts involved. It is the application of an account intended for the resolution of other loans. Like with most financial plans, getting approval for the loan it proposes, even with good terms and credit scores, is difficult. In other cases, presenting collateral is a requirement. As it promises fewer accounts to manage, debt settlement companies prefer it over other debt negotiation means.
Secured & Unsecured Debts
Secured debts (i.e. foreclosures, mortgages, and repossessions) and unsecured debts (i.e. credit card loans, payday loans, and term deposits) can be consolidated altogether. Provided an agreement was arrived at, it implies that credit scores from previous transactions may be used as basis to qualify for different types of loans. Debtors may benefit from this debt management approach. Creditors, however, are concerned as most are taking advantage of the strategy to acquire the lowest interest rates for their debts.
A Typical Case
Upon debt consolidation, it isn’t uncommon for the consolidated loans to immediately be set a fixed interest rate. For instance, with credit card loans, mortgages, and student loans having a 5% fee for each, the rates are charged as one. In this case, prior to debt consolidation, the interest is 15%; after, it becomes 3%. As the debt consolidation companies providing financial advice aren’t in control of creditors’ operations, the rate isn’t supposed to change.
Debt Consolidation Gone Wrong
Basically, with debt consolidation, debts won’t completely be eliminated; rather, these will just be less burdensome. As its take on managing debts is prolonging due dates, it privileges debtors to bounce back in cases of a major financial fallback. Should it be done tactlessly, however, higher amounts are subjected to be paid. It offers a simple fix but it isn’t meant to be processed in haste. As a single misstep can cause fees to grow quickly, the importance of availing debt negotiation companies’ services comes into play.
Is Debt Consolidation the Solution?
As a commonly overlooked aspect is the total, consultations for debt settlement advice offer a safer status. Monthly bills may be reduced but once the sum for all consolidated debts is realized, the figures are significantly increased. This is due to the length of time pending debts are kept.
Debt Consolidation Alternatives
In cases where debt consolidation isn’t the practical solution, debt settlement companies present debtors debt consolidation alternatives. Also, as the approach is focused on solving the number of debts, instead of addressing the debts per se, the issue of it being an ineffective method isn’t out of the picture. Should the results of the evaluation of assets, cash flow, credit scores, and value indicate that the debt management strategy is unable to salvage debtors’ situation, financial advisers will renegotiate. Credit counseling, declaration of bankruptcy, snowballing debt, and settlement will be among their suggestions.