Have you ever experienced pressure from multiple sides? Ever felt like you are cornered and that there is no way out? Like the only thing that could rescue you is a miracle sent from up above? Well, people who are in debt sometimes may feel like this when creditors start asking for the money to be paid back. The debtor can, in these situations, feel very pressured, especially when things get out of hand and day-to-day obligations cannot be fulfilled because of the accumulated debts. The solution, that miraculous intervention, is right here. The important thing to remember is that there is always a solution, no matter how dire the situation is.
So, there are a few ways out of the debtor’s problem, and the most common ones are credit counseling, debt relief, debt settlement, personal bankruptcy, and the option we will discuss here – debt consolidation. While other options can involve forgiveness of the whole or part of the debt (debt relief), negotiations which will lead to lower interest rates, so the overall credit is lowered (debt settlement), and other negotiable alternatives, debt consolidation is, however, based on the fact that the debtor and creditor reach an agreement about a new loan which is to replace all the existing loans which burden the debtor. In other words, debt consolidation is a kind of debt refinancing in which the debtor takes out one loan to pay off multiple other loans. Most commonly, debt consolidation is connected with consumer debt, yet sometimes may refer to corporate or government debts. The basic intention of the debt consolidation process is to obtain a lower interest rate when compared to other, existing loans and to secure a convenient option of servicing only one loan.
Consumer debt, even with all the existing variations from country to country, is, basically, made up from credit card debt, car loans, and home loans. Student loans are usually not placed in the consumer debt group. The pressure of these existing debts, credit card debt being the most common tipping point since the interest in these kinds of loans is the worst for the debtor, can sometimes lead to an overload on the debtor’s budget and the inability to service loan obligations. Therefore, debt consolidation allows the debtor to acquire a new loan, usually secured with collateral, so that the other loan can be paid in full and the only credit obligation is the one from the new loan.
In most cases, collateral is demanded as a way to secure the new, consolidated loan. The equity the debtor has, as a homeowner, placed in the value of his house or another real estate, is used as a way to secure the consolidated loan. The creditor can, hence, in the case that the debtor does not service his new, consolidated loan, can proceed to foreclosure and return his investment from the value of the debtor’s house.
Of course, just like any other loan, consolidated loans have several good sides, but also some drawbacks. For example, the good aspects of a consolidated loan are that your credit score is certain to improve because of lower credit card balance, also, your overall interest rate is bound to be lower which will allow you to pay less every month and you will have the possibility to „attack“ your debt and focus to try to return the debt more quickly.
Furthermore, you will not have to bother with many payments each month because all of them will be concentrated in one payment, which also means that you will not experience the late fees of many different missed payments. You also might enjoy certain tax breaks (in case of collateralized loans) and the ability to create a savings account or an emergency fund while servicing your debt.
On the flipside, debt consolidation has a few negative aspects. The main drawback is the fact that you are bound to pay more over time because a consolidated loan will surely come with a significantly longer loan period. Even if your monthly payment is lower than when you entered the consolidation process, the total amount returned will certainly be higher overall. Also, go for the consolidation only if the interest rate offered is significantly lower than the rates you have to pay now. Otherwise it might be for the best to skip the whole consolidation process. Always keep in mind that consolidate loans are, in most cases, secured. This means that you must service your loan obligations on time unless you want to risk losing your home.
Furthermore, think twice before consolidation because sometimes bankruptcy can be a better option due to discharge options. In the end, consistency and discipline are the main ideas you have to form your budget on. Many people simply get back on the wrong track after consolidation and run up their credit card balance again. Be committed and service your debt on time.
It is easy to understand that the consolidation process can be if entered with all the knowledge needed and undertaken with care and discipline, a true way out of financial hardships. On the other hand, if you do not change your spending habits and continue to be late on payments and increase your credit card and other debts, debt consolidation is just a mask process to temporarily hide your problems. Therefore, as said before, you have to be careful and handle all the information concerning the consolidation process, and, most importantly, act with diligence, discipline and commitment to your obligations.
In any case, we can offer expert help with the process of debt consolidation, all the way from initial counseling and provide all the necessary information about the consolidation process, to debt consolidation finalization process and creditor relations. We can offer transparent and professional service, the highest regard for professional and ethical standards and the highest levels of customer service during the whole consolidation process. Remember, debt consolidation is an excellent way to manage your debt pressure and current financial obligations and ease your financial burdens.