debt consolidation loans diamond-necklaceDebt Consolidation Loans can be used to pay off all your debts, meaning your old debts are gone and you now have only a single payment to be concerned with each month. You can obtain a consolidation loan by means of a 2nd mortgage or a home equity line of credit (HELOC) and lower your monthly payments. Remember that these types of debt consolidation loans require you to put up your home as collateral. If you can’t make the payments — or if your payments are late — you could lose your home.

HELOC offers a great deal of liquidity along with low interest rates. Presently, a line of credit can cost about 4% or 5% a year. Second mortgages are generally considered to be a higher risk than the original mortgage, since the lender which issued the original mortgage has first rights to the property. Because of this, interest rates for a second mortgage are usually higher than those for the primary mortgage.

An advantage of an unsecured consolidation loan is that your home is not collateral to be forfeited in case of default. The disadvantage of unsecured loans is that the interest rates are substantially higher.

America is drowning in credit card debt, with combined interest rates offering little chance of ever paying off the principal. Consolidating all your credit card debts into one loan, a single interest rate and a single monthly payment is an attractive option for many financially troubled people. The average U.S. citizen pays 11 different creditors every month. Making one single payment is much easier than figuring out who should get paid how much and when. This makes managing your finances much easier.

Getting a debt consolidation loan is a simple and straightforward process. You simply contact several lenders and tell them that you’re interested in consolidating your debts. Debt consolidation plans usually involve arrangements with your creditors, offering them a percentage of your payment in exchange for lowering the interest.

Debt consolidation often requires counseling and advice on managing your money, developing a budget, and in some cases workshops. Counselors, certified and trained in the areas of consumer credit and debt, will discuss your entire financial situation with you, and help you with a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP).

A DMP alone is not credit counseling and DMPs are not for everyone. You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors.

Consolidation offers students, home owners and cash-strapped borrowers a “breather” by simplifying and extending repayment. After consolidation, credit bureaus are notified that your old accounts have a zero balance. Your new promissory note will establish a new interest rate and repayment schedule. Compare rates from at least three companies. Never accept their published rates as final (they will compete for your business).

A Personal Debt Consolidation Loan for most people is by way of equity in their home used as collateral. This type of debt consolidation loan is easy to qualify for even if you have bad credit.

An unsecured personal debt consolidation loan on the other hand…is available to those who do not own a home, or the home does not have enough equity in it to borrow against. In order to get approved for an unsecured consolidation loan, you need to have good credit. These loans are usually done through a credit counseling agency. Unsecured loans typically have higher interest rates.

Interest rates on debt consolidation loans will be significantly lower than the interest rates you’re paying on your credit cards. If you have a lot of cards a debt consolidation could be a very good idea. A common trap for many, since the credit cards have all been paid off, is to succumb to the many offers they get for new ones. Consolidating your debt and then running up more is always a bad idea. Consider that debt consolidation loans with their lower payments generally last a longer time – you could be paying it off for many years.

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