Debt Consolidation
What Is Debt Consolidation?
If you are overwhelmed with managing many loan and credit card payments, and would prefer the ease and convenience of one monthly payment, you may be be wondering “Should I consolidate my debt?”
Because of the growth of the debt industry and over-use of the term debt consolidation, there is quite a lot of confusion among consumers today about what this really means. Debt consolidation is a method of debt management which allows you to convert several payments into one manageable payment. This can be done in one of several ways:
- You can obtain a loan to pay off your smaller loans
- You can obtain a secured or collateralized loan, usually a home equity loan, to pay off your other loans
- You can hire a debt management company or credit counseling agency to manage the debt
- You can file a Chapter 13 bankruptcy and the bankruptcy trustee will manage your repayment
These are all methods of debt consolidation. However, if you are financially strapped to begin with, applying for another loan may not be in your best interest. And you should certainly think twice before tapping into the equity on your home, under any circumstances.
If you decide to consolidate your debt by applying for another loan, you should first consider debt settlement as part of the overall solution. It is a way to reduce your debt to a more manageable amount. With successful debt negotiation, you will wind up having to deal with 1/2 or less of your original loan amount, which means there will be far less for you to pay back. Once you have negotiated reductions on your debts, obtaining a loan in order to pay off off the negotiated lower principle makes a lot more sense.