Knowing When Debt Consolidation Can Help
Perhaps you’ve run across the term “Debt Consolidation” while watching television or from junk mail you’ve received. You may have also found your budget getting tighter as gas prices, energy costs and even the cost of groceries keep going up. As a result, debt may be putting a crimp in your income more each day. You may start looking for debt relief as you find yourself using credit just to make ends meet. This can be the point when Debt Consolidation comes to mind.
Debt Consolidation is the process of arranging your bills and debts so you can save money by combining the bills into one loan or payment. Debt Consolidation is primarily used to lower your monthly payments or to secure a lower interest rate. The ultimate goal of Debt Consolidation is to free up money in your budget or pay off debt completely.
In some cases, you can combine unsecured debt into an unsecured loan. However, in most cases, debt consolidation involves combining several unsecured debts into a secured loan. The typical collateral for a secured loan is your house. This is why homeowners are bombarded with home equity loan offers on a regular basis.
On the bright side, a secured loan offers a much lower interest rate than an unsecured debt consolidation loan because the lender assumes less risk. You’ll probably find the reduced interest rate to be the best way to consolidate your debts and hold onto more of your income each month.
Student loans which are primarily used to pay for college expenses may also become burdensome over the years. These loans may be consolidated as well, but ordinarily the steps involved are different for consolidating student loans than for consolidating unsecured debt from credit cards.
Because of the nature of student loans, you may only be able to consolidate them, in order to receive a lower interest rate, one time with a private lender. After you’ve used the advantage of the student loan private refinance option, you may be able to consolidate them again through the Department of Education. You should be aware that you aren’t actually “refinancing” the student loans. What you’re actually doing is locking in the remaining balances of the loans at a fixed interest rate, which is distinctly different from standard refinancing.
Debt consolidation can be very helpful for both student loans and unsecured consumer debt as a way to reduce interest payments and pay off the debt. Consolidating a number of debts into a single monthly payment can ease the budget and add to convenience. However, it usually comes at the cost of putting up your property as collateral.
With careful research and planning, debt consolidation can have a positive affect on your financial circumstances. On the other hand, if you continue to incur debt, it typically will not improve your finances over time. So, if your income is spread too thin, do your homework and consider debt consolidation by becoming informed for the best results.
November 16 2008 09:55 pm | Debt Consolidation
