What Is Debt Consolidation 45672341533060

For consumers who have let their debt get out of their control, larger questions about debt and bankruptcy loom. These questions are hard to answer and even harder to face for many consumers, who are left trapped in the cycle, wondering where they can go except down in their continuing spiral of debt. The first step toward a solution, though, is simply asking ' what is debt consolidation ?'

Debt consolidation is the process of bringing your debts under the umbrella of a single loan to help you make payments more easily and to help you reduce your monthly payments as well as your potential interest rate. This can be done through the use of a new loan, or you can turn to a debt consolidation company to help you if you have a poor credit score, and you lack the means for a new loan.

Debt Consolidation Company or Debt Consolidation Loan?

A debtor who turns to a consolidation company is clearly not making the best choice. Instead, it is much wiser to consider contacting the companies involved to explain your financial situation, and that you are considering bankruptcy, if that is true. Ask them to help you make your payments to them by lowering interest rates and possibly by waiving fees. Your credit card company would rather get back slightly less in interest than no money at all, and they will usually work with you.

You can also get a loan with or without collateral, which includes a home equity loan, a loan against your car, or a personal unsecured loan. Look specifically for a loan with a fixed rate to prevent problems as interest rates rise. You can also try turning to the government for a federal debt consolidation loan if you qualify. Find out by checking online.

What is Debt Consolidation? It allows you to roll all of your debts into one (a consolidation loan) and you now only need to make one payment each month.

It has now become commonplace to think that a debt consolidation loan is the right step forward due to a lot of television advertising that now takes place. The TV adverts simply use a known trusted celebrity to endorse their product, such as Carol Vorderman.

The viewer thinks, "Well, if Carol Vorderman recommends the product and she is good with numbers, then this must be the best solution."

- Not necessarily

One thing you may miss when watching the television adverts is the small print, "only homeowners need apply"

What most people do not understand is that these tend to be secured loans, which means that it is secured against your home. If you fail to keep up payments with the loan then you will lose your home.

Why Do People Recommend A Debt Consolidation Loan?

The main reason given is to simplify the payments to all of your creditors with one payment per month. Also, you may find that the debt loan has a lower interest rate than for instance your credit cards. So, people recommend that you pay off all of your credit cards with a loan because you will not be paying as much interest.

Debt Consolidation Loans Lead To Deep Debt

However, even though a loan can have a diminished interest rate than your credit cards, think about this, most people who use this method, will clear their credit cards, take out a secured consolidation loan and will begin paying one monthly payment. How much willpower do you think is needed to not spend any money on your now cleared credit cards? - Good luck - the willpower required for this is massive!

This type of loan (according to credit action) leads three in five people into deeper debt.

What most people do not understand as they get deeper and deeper into debt is that their homes are at risk if they do not keep up repayments on the secured loan. Typically, a person who has cleared their credit card debts and taken a consolidation loan will begin spending money again on their credit cards and rack up more and more debt, which eventually leads to the problem of not being able to keep up the payments on the loan and eventually leads to the loss of their home.

If you have credit card debts, remember that these are unsecured debts, so you cannot lose your home from not paying your credit card debts, so even though you can potentially save money by paying off your credit cards using a consolidation loan, the risk is much higher as you could potentially get deeper and deeper into debt and also lose your home.

If you have debts and you are worrying how to clear them, the first step you should take is to get some professional advice and not take a debt loan. You may be surprised at the options available to you.