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Debt Consolidation - The Choices Are Out There
At this point, there really has never been a better time to consolidate
your debts. If you can afford (and can get approved) for a debt consolidation
loan, rates are at 40 year lows. Which can be a great thing, especially
if you are having trouble. But they are not the cure-all, and certainly
do not work for everybody. If you are having difficulties meeting your
monthly payments for credit cards, or worse, mortgage payments, you may
not even qualify for a debt consolidation loan. What's more, consolidating
your credit card debt (which is known as unsecured debt) can be a disaster
which can mean the repossession of your house. It's important to address
this point first.
Debt Consolidation Loan Disadvantages
Ok, so you are having trouble meeting your minimum monthly payments on
your credit cards. You understand that you may have overspent, but it's
OK, because a debt consolidation loan will save you. All you have to do
is put up your house as collateral, and your interest rate goes from 18
to around 5%. This is obviously pretty good. But what they don't tell
you is that this is not a fix-all. Many Debt Consolidation Advisors clients
come to us after they have already run into problems with both their debt
consolidation loan and their credit cards. By this point, there is
only so much we can do.
Debt Consolidation Loan - Secured For A Reason
The difference between credit card debt and debt consolidation loan debt
is not as simple as it looks. The difference between the two debt forms
is that one is secured, and the other is unsecured. What this means, effectively,
is that secured debt is tied to a possession, such as a house or a car,
whereas unsecured debt is not. Let's say, as an example, that someone
is eeking by with their credit card debt by paying the minimum payments.
Obviously a debt consolidation loan will save them money, right? So they
get a loan, "consolidate their credit card debt", and then everything's
OK. Now, let's say this individual loses a job, or worse, develops a medical
problem which means they will not only be off work for a while, but also
means they will be paying healthcare bills. It's important to understand
that if you have problems paying back your simple credit card debt, "debt
negotiation" is possible, or credit
counseling, or even bankruptcy
in the worst of cases. What this means is that in a harsh emergency, you
can, with the help of a professional agency, alleviate your debt. On the
other hand…
The "Dark Secret" Of Debt Consolidation Loans
With debt consolidation loans, if the situation above played out, and
you lost a job, and couldn't pay back your debt consolidation loans, your
house would simply be repossessed. Simple as that. Although many lenders
will do their best to accommodate you, repossessions are a fact of life.
So, suddenly this emergency situation has become so grave that you are
in a lot of trouble. With credit card debt, however, this could never
happen.
Unsecured Debt - Important Considerations
It is important to note that we never, ever, advocate not paying debt.
This is not what we at Debt Consolidation Advisors are about, and we would
never suggest this. But, unsecured debt such as credit card debt, medical
bills and some other debts can be effectively "negotiated" by professionals
in cases of emergency. In reality, if you do not pay your unsecured debts,
your creditors may be able to take you to court, but they cannot touch
your possessions. This is the biggest reason why debt consolidation loans
can be very dangerous.
The Other Options
There are other ways to consolidate your debt. Consider, as an option,
borrowing from your 401K (which is possible, but not the greatest idea),
transferring your balance to a new credit card (which frequently offer
low interest balance transfers for short periods of time or even a whole
life insurance policy, which feature a cash value. If you are having real
problems though, and have experienced any of the issues addressed above,
it won't hurt to seek professional debt help. Agencies like Debt Consolidation
Advisors offer credit counseling (for those with lesser debt issues),
as well as debt negotiation, which can save you thousands of dollars,
and enable you to get back on a path to financial freedom. Contact
us here.
Having issues with debt? Contact us here for a free
debt consultation. We may be able to provide debt help.
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Debt Solutions