debt consolidation


Credit Consolidation

Ever since credit cards were invented, people have been in debt. It is a totally natural party of everyday finances, but for many people, it can consume happy everyday living. Finding a way to deal with credit issues is a difficult task, and something that many people would rather brush aside, and not acknowledge. There are numerous options to debt relief, with credit consolidation being the most popular out there.

Even thought there are thousands of companies offering different consolidation services, then you break them down to basics, you always end up getting the same outcome. Basically, all consolidation loans are forms of debt restructuring, with at least two promises; first, a lower interest rate, which means lower monthly payments, and second, a more organized payment plan.

Methods to Credit Consolidation

There are a few methods to reach your goals of debt free living through consolidation. All have levels of risk associated with them, and should be considered carefully before you take the next step, and dive into a particular credit consolidation program.

You first option is the most common option, but is also considered the most difficult to commence, a consolidation loan. The idea behind this option is quite simple; take out a loan equivalent to your total debt, and use that loan to pay off all outstanding balances. The advantages to using this technique is one simple monthly payment, due to the fact that you have combined all previous debts into one payment, and second, the interest rate on a credit consolidation loan is usually significantly lower than a credit card APR.

The downside to this option, however, depends very much so on your credit situation. More often than not, you are looking into consolidation due to the fact that debt has a negative grip on your life. Sometimes, getting a credit consolidation loan can be difficult unless you have a very strong credit rating. If your credit is damaged, you may be offered too little an amount to pay off all your debts, or a high rate on interest, both of which are non-beneficial to you, or even not be offered a loan at all.

You second option in credit consolidation would be to use home equity. By using equity, the value of your home or property above its purchasing cost is used against your debt, or also knows as a second mortgage. Lenders will usually be more than willing to offer you a loan if it is backed by some sort of collateral, especially home equity.

Of course, this option has way more risk to it than a simple, unsecured consolidation loan. The bad news is that if you fall into debt again, and don't make better of your situation, your home will be used to cover your debts. Lenders could potentially foreclose on your home. This option requires very good money management skills, as to make sure that you do not fall back into the same spending habits and put yourself, and family at risk.

Beware of Scams
As many as there are legit companies offering these services, there are just as many that are trying to take your money, without offering a helping hand at all. If you are suffering from financial hardship to the point where you are willing to do almost anything, you are the perfect target for scams. Beware of any credit consolidation company that asks for money to complete and application, or asks for a down payment to secure your consolidation loans. As well, be aware of companies that claim no credit check required. More often than not, these companies will require some sort of application fee, and chances are, when you send it in, you will either never hear from them again, or will be denied credit.

The most powerful tool you have in your arsenal is knowledge. Learning as much as you can regarding credit consolidation, and asking as many questions as possible, especially to the professionals you might want to do business with, can make the difference between success, and going deeper into financial trouble.

For more information on credit counselors, click here.

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