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Jan 30 2017

What Is Consolidation? #loans #for #people #with #bad #credit


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Identification

Debt consolidation is the process of taking multiple forms of high interest debt, usually in the form of credit accounts, and then getting them under one managed consolidation account. Some people opt to have a professional debt consolidation firm help them get their bills under control, while others prefer to deal with the situation on their own. Debt consolidation is normally accomplished by securing a loan that will be enough to pay off all of the debt at a lower interest rate than the rates on the existing credit accounts. There are other options to debt consolidation that are available to anyone looking for help with their obligations.

Types

The most common type of debt consolidation program is a loan that is put together and administered by a debt consolidation organization. If there is sufficient equity available in the consumer’s home then they may want to look into a home equity loan or home equity line of credit to use as a consolidation vehicle. Some people use either secured or unsecured personal loans to help bring their bills together. A secured personal loan is a personal loan that requires personal property to be used as collateral to back the value of the loan, and an unsecured loan is a loan that is granted without the need of collateral. Some consumers use special credit card offers to consolidate credit. These special credit offers allow consumers to get a credit card with a limit that is enough to consolidate their current debt under the one card, and in some cases the consolidated balance carries a zero percent interest rate which allows a significant savings to the consumer.

Benefits

Credit consolidation will allow a consumer to bring a series of high interest credit accounts under one low interest loan which immediately reduces the interest obligation for the consumer. The several service charges will also be eliminated and replaced by one service charge which helps to reduce the monthly payment. The consumer is better able to pay their debt each month, and they may also find that they have extra cash each month that did not previously have.

Misconceptions

Debt consolidation programs administered by a debt consolidation company appear on the consumer’s credit report as a consolidation account. Until the account is paid off, this can have a negative effect on the consumer’s credit score. If the consumer is able to secure their own financing through an equity loan or a personal loan then they may be better served as a those types of financing have a positive effect on a credit score. Many people turn to debt consolidation companies because they are unable to secure financing on their own that is large enough to cover their debt. It is recommended that a consumer do research on a debt consolidation company before signing an agreement to make sure that the company is reputable and has an established history.

Considerations

Some people consider debt consolidation when they are still able to pay their monthly bills. In some cases the consumer may want to talk with a debt counselor as opposed to a debt consolidation company. It may very well be that with some creative financial moves the consumer will be able to create their own bill payment plan that will not require any outside financing. This option is sometimes preferred to taking on a consolidation program or a personal loan.



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