Debt Consolidation Services - Getting Out of Debt
January 9th, 2008 | by HelpingU ||
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Today we’ll being a multi-part series on debt consolidation services. The series will cover the basic aspects of debt consolidation and a review of the numerous services available to consumers the United States, Canada and the United Kingdom.
What is “Debt Consolidation” and what is a “Debt Consolidation Loan”
Debt consolidation is the process of taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. In most cases a debt consolidation loan is a low cost, secured on collateral loan. It can be secured in the form of any equitable property which can your home, car or any valuable asset. Debt consolidation loans consolidate all debts incurred through personal loans, credit cards, overdrafts, or any number of unpaid bills that have built up over time. These loans can give you a fresh start, allowing you to consolidate everything into one, thus giving you “one” easy to manage payment and in most cases at a lower rate of interest. A debt consolidation loan can reduce both your interest costs and your monthly payments allowing you to reduce your overall debt and help out your credit score. These type of solutions are a practical means for eliminating credit card, high interest debts and getting your credit rating back on track. Being concerned about debt can be extremely stressful and unhealthy to the average consumer, so if you’re in this unwanted situation, please take a few minutes right now and educate yourself about your options with these tips below.
Choose a Debt Consolidation Company With a Good Reputation
Don’t assume that every non-profit company is necessarily going to look out for your interests more than for a profit. Shopping around will give you the means to decide on the one that best suits your circumstances and your budget. Spend time researching different lenders and get quotes from a handful before deciding on one. You can optionally check with the Better Businss Bureau for information about a particular company and see if they have complaints against them, in which case, you will want to avoid them. Additionally, you will want to look up an agency that is the member of the National Foundation for Credit Counselling (NFCC) or the Association of Independent Consumer Credit Counselling Agencies (AICCCA).
Do the Math
Take the time to work through the expenses yourself and see how much you will be paying, how long it will take to pay off the loan and if it is advantageous to persue. Look for the hidden costs, creditor charges, and any other costs involved. Many lenders add payment protection insurance to their loans without the borrower’s knowledge and it is often more expensive than options available elsewhere. Consumers who are wishing to consolidate their debts often take the first opportunity available unaware of lower rates and other available options. When seeking a debt consolidation service, treat it as if you were shopping for anew car and don’t be impulsive, shop around.
Is it Cost Effective in the Long Run
Paying off an existing debt may incur charges for early settlement and there may also be a fee for arranging your consolidation loan. A debt consolidation loan should be cheaper than the individual loans and debts since that’s the basic premise of securing such an arrangement, otherwise how is it different from any other secured loan? Also, by taking a new debt consolidation loan, you will be extending the period in which you are paying off debts and that might mean a greater compounded interest cost in the long run. So take the tims and read the fine print on your credit agreement statement before signing it.
Interest Rates
Make sure you understand the difference between variable and fixed rate loans. If you sign up for a variable rate loan, you may get a lower rate initially, but within a few years it may go up. Usually variable rate loans are based on a prime lending rate which is set by governmental agencies. On the contrary, a fixed rate option does not fluctuate with any changes in rates. However, in a fixed loan, your interest rate will not go down when the prime interest drops as it would with a variable rate loan. Again, do your math and evaluate the time it will take to pay off your loan versus other economic indicators. If you do choose a variable rate loan, it is advisable that choose a shorter loan period, usually between six months and two years. If you are intending on taking five or more years to pay off the loan, it is advisable to stick with a fixed rate.
Debt Consolidation Counseling
If you are in doubt about debt consolidation, debt counselling can provide you with expert debt advice for essential financial planning. A counselor can help you sort out your present debts as well as prevent you from getting into future debt. Debt counselling services can talk to your creditors about reducing your interest rate, eliminating late fees, altering repayment options and extending your loan term.
Conclusion
Secured on your collateral, low interest debt consolidation loans can lessen the quagmire of payments to your existing creditors and replace them with a single low cost monthly payment that is calculated to be within your means. Never take more than you can afford to repay because you will just be re-opening the same old can of worms, make sure take something that suits your credit repair needs and will allow you to reduce your debt without stress and heartaches. While a significant number of consumers are not aware of the benefits of debt consolidation options and many are suspicious about how it works, there is a need to increase the awareness of the available solutions. This blog will be focusing on options for debt conolidation for a series of articles over the next month. If you are on the fence about choosing one of these services, please stay tuned or subscribe to our RSS feed to keep informed.
