How Does Debt Consolidation Work

In this article we are going to look at the advantages of doing a debt consolidation. You may have heard of debt consolidation referred to as Consumer Credit Counseling, debt management or CCCS. They are basically the same thing. Doing a debt consolidation program is different than doing a debt negotiation program. In debt negotiation you are reducing the amount of principal that you will pay back and debt consolidation you are negotiating the amount of interest you will pay back. In debt consolidation you will pay all of the principal back plus interest. You will keep your credit up in the process. A debt negotiation program will save you some money in what you owe to your creditors, but your credit scores will get hammered in the process.

The first benefit of doing debt consolidation is the reduction or elimination of accrued interest and penalties. When you stop paying or default on a debt on any of your accounts, the finance charges and interest do not stop piling on. Once you start getting behind in your payments, the late fees and over limit fees can really start adding up. Not only will you keep racking up interest owed on the original debt, but you will also rack up new interest owed on the late fees and over the limit fees as well. A debt consolidation program eliminates the portion of your total debt that is built up by accrued interest and other over the limit, late, and charge off fees. Why this is important is that the amount you owe will not keep going up (as long as you are not using the card) so your payments can begin to pay down what you owe.

A debt consolidation program will give you only one payment to worry about each month. I have talked to people that have over 20 finance accounts to manage each month. With that many accounts to worry about, one will likely slip through the cracks at some point and give you a late payment. Your credit will take a hit as well. Once you start to pay late the credit card companies can jack up your interest rates. Some credit card contracts allow for raising your rates because you were late on another company’s credit card as well. That is right, even if you have been paying on a card as agreed (on time) and you miss a payment on another card, the credit card company that you were paying on time might raise your rate too. I know it is crazy but that is how it works. With one payment to worry about, your chances of being late are minimized.

Your interest rates may also be lowered when you enroll in a credit consolidation program. Your creditors may not work with you in lowering your rates before enrolling in a program, but once you enroll in a debt management program they have to lower your interest rates. Sometimes they can negotiate your interest rates to 0%.

A good debt consolidation company can prepare a budget for you. They can help you develop healthy financial habits so you never have to sign up for a debt management program again.

If you are getting any harassing creditor calls you may want to consider registering in a credit counseling program. Once you register your calls from debt collectors should stop. If you keep getting calls, just let the company who is managing your debt know about it. Often they can take care of this for you with a letter or a phone call. By law they need to stop calling you once you are in a program.

Once you are in debt and are in over your head, there are not many great options to get yourself back on track. The best way to stay out of financial crisis is to be realistic about your purchases. Do not spend more than you have coming in. However, if you find yourself looking for ways to get out of debt, debt consolidation is an option worth looking at.

Debt Consolidation As An Alternative To Bankruptcy

You are in over your head, juggling from one card to another but still you can't appear to make the ends meet. To worsen the situation you are being plagued by abusive telephone calls and annoying notices from creditors. And to get rid of these nuisances you are contemplating to file for Bankruptcy. Bankruptcy is undoubtedly the most sought after debt relief solution availed. Individuals as well as big corporations all over the world declare bankruptcy to wipe off their debts. So, you are not alone, you are in the same boat with the million others who are left wondering: “can bankruptcy really make me get rid of all the debts?”

Unlike the popular myth, bankruptcy does not exempt you from each and every debt that is listed in your petition. Obligations like student loans, spouse support, alimony, certain types of taxes, child support, court restitution orders, or criminal fines are not discharged. So, bankruptcy in reality does not free you from all your debts and financial obligations.

Declaring bankruptcy makes impossible for you to get new credit, acquire new home or car, get insurance and sometimes even apartment for rent or even a job. It is one of the worst negative remarks on your credit report and its inclusion will make it almost impossible for you to acquire any additional credit. And if you do get credit it usually comes with a pretty high interest rate. In addition to this, a bankruptcy stays on your credit report for between 7-10 years. Even once it is erased from your credit report it will stay as a public record for the rest of your life.

Thus, it should be viewed as a last resort for reducing one’s debts. You should be contemplating on other debt reduction solutions before declaring bankruptcy.

There are many viable options for the individuals who are bearing the brunt of overwhelming debt and debt consolidation is one of them. It is viewed as a way out that can ease most of the financial troubles.

With debt consolidation you are combining all your smaller and outstanding loans into one larger and more manageable loan. You just have to make one monthly payment instead of making several payments. This feature makes debt consolidation the most preferred debt relief solution. Instead of multiple debts to pay, all with different due dates each month, combining debts allows you one payment per month, thus reducing the chances of missed or late payments.

Fitting all the numerous bills into one payment also means that you are left with a single reduced interest rate and an affordable monthly payment. However, a word of caution here and that is you will be having extra cash after paying the monthly payments but it doesn’t mean that you should spend it all. Use the money wisely or else you will fall in debt again!

With a lowered interest rate paying off the monthly payments become easier. It is usually seen that the individuals who have overwhelming debts pay more interest every month than they do on the original principal balance of their debt. Thus, debt consolidation by waiving off the sky-rocketing interest rates gives a push to your debt free life.

Is A Debt Consolidation Loan For You?

If your credit card debt is genuinely bad, then you may be considering a debt consolidation loan. A consolidation loan is a loan that you can use to pay off all your debts, by using the loan to pay your debts you effectively 'transfer' your debt to the one company, the consolidation loan lender.

It can make things much easier and cheaper and there will be just the one debt to keep track of each month. Plus, you can usually get a much lower rate of interest on a consolidation loan than what your credit card company can offer.

Consolidation loans have their advantages and their disadvantages and it pays to study what they offer before you commit yourself.

The Rate Of Interest

Be sure to shop around to get the best interest rate you possibly can if you opt for debt consolidation. This interest rate is almost as significant as the one on your mortgage, but very much harder to change after you've signed on the dotted line.

Don't be fooled by any offers that give you a fair rate for a limited time, the chances are you're going to possess this loan for quite a time.

The chances are that any interest rate you're offered on a debt consolidation loan may be significantly lower than the interest rates you're currently paying on your credit cards. If you have a number of cards at a big rate and you've been unable to transferring the balances, then debt consolidation may be the solution.

The Term Of The Loan

A common aspect of debt consolidation loans is that the loans at lower payment rates generally stretch over a significant number of years, it's quiet possible you could be paying your loan off for twenty or more years.

You should aim to find a loan that runs over a shorter term and only requires payments that are as much as you can comfortably afford. Be wary of being offered small monthly payments without considering the considerable number of years you may have to pay that small monthly figure.

Be Wary Of Other Credit Cards

Something else to be aware of when taking on a debt consolidation loan is how tempting it can become to take up an offer of a new credit card. Now you're saving all this cash, you can maybe afford a few extra cards, can't you?

Don't fall in to this trap! Consolidating your debt and then accumulating more is an very bad idea.

Your Home Is At Risk

Of course, this is the biggest risk when you take on any major loan. Almost without exception, the loan will be secured on your house. That means that if you miss any number of payments, the finance lender can take possession 'repossess' your home, dispose of it, and pay back the debt with the proceeds.

There's a whole industry of property developers buying repossessed houses to sell them on for a profit. The chances are that you'll come out of the experience with nowhere near enough money left to buy even the smallest residence and nowhere to live.

If you do take a debt consolidation loan, you need to study the small print as if your life depended on it, it does, and then be very careful.

How Debt Consolidation Works

We all carry a lot of debt around with us if we live in the western world, and sometimes the load becomes almost unbearable, but there are ways in which you can limit your debt burden without paying through the nose to do so. In fact, anyone who doesn't, is a fool. This article is a short read on the subject of debt consolidation. Read the entire article and if you require more information then just visit the link at the bottom. Happy Reading!

Debt Consolidation is just plain good sense. What it means is, rather than holding debt in a variety of places - let's say two credit cards, an auto loan, a retail store charge account and a student loan - you take out one nice big loan that pays off everything, and pay one monthly interest rate.

Now, most people don't do this, and the reason why is simple - they're either lazy, or they don't know that such a thing exists. The reality is, any bank will gladly help you put together a debt consolidation loan, because:

a) You're transferring your debt to them (and they like that a lot)
b) You're showing real initiative in turning your finances around
c) You're not borrowing MORE money, you're just borrowing it from one place

The way it works is easy. Many kinds of credit incur a monthly minimum charge. For example, the interest on your credit card might be $50 per month, but the credit card company will insist on you paying a percentage of what you owe in total, not just the interest. So your credit card payment for the month will be $150 or more.

Now, if you have two credit cards, that amount just doubled. Now add the late fee for any time you're short that month can make a late payment ($20), another $25 if you go over your spending limit, and then all those other accounts on top (student loan, retail store, car loan), and you're paying hundreds of dollars to several entities.

But if you consolidate all those loans into one single debt to one single company, you pay just one simple fee. And instead of the 19%-39% that credit card and loan companies charge, you're dealing with a manageable rate, and a timeframe that will eventually see you completely debt-free.

Isn't it time you took that first step with your financial future?

We all, over the course of our lives, sometimes rely on credit to get by. Whether it is for a mortgage on our home, a loan for a car, or a payday loan to get by until next Friday, there's little we can do to escape the effect of a debtors society. But the way you handle your debt is something you can have a say in, and indeed the way you do so could mean you save - or spend - thousands of dollars a year.

Let's imagine you have a few credit cards on the go. One of them, the card you had since you were in college, has a few grand racked up on it, and because you missed a few payments way back when, the interest rate is at 19%. Ouch. Well this happens to the best of us and according to the statistics most of us.

But most of us never look at the interest rate we're paying, because, quite frankly, we don't give it a second thought. MasterCard says we owe them $184 this month, so we pay $184. This is simply the worst thing you can do for you financial future.

But it doesn't have to be that way. Many credit card companies will give you a card, albeit with high interest after a period of time, that for the first 6 months to a year comes with 0% interest on all credit card transfers. What this means is, if you use your new card to pay a big chunk of your old card, you pay no interest on the new card for a set period of time.

Now, of course once that time is up, they'll put you right back on the expensive interest rate, but for a short time, the money you pay on your credit card is ALL-principal.

Credit card companies don't like you doing this too much - in fact, they'll put it on your credit card report if you do it more than a couple of times - but if you're looking to get out of a short term financial logjam, look for those introductory offers and use a new card to pay off your old card.

Debt Consolidation Loans For Bad Credit: Perfect Recovery Pill

Debt consolidation involves accumulating the multiple debts into a single debt and clearing them all at once. It is an effective tool to combat the financial mayhem sprouting out of numerous debts. But people facing a bad credit often face difficulties approaching the normal debt consolidation and if provided they charge exceedingly high rate of interest thus defeating the sole purpose of consolidating the financial position. Well debt consolidation loans for bad credit provide a reason to cheer up as it specifically targets bad creditors.

Chiefly they are available in secured genre which means you as a borrower will have to furnish substantial collateral. It can be anything from you house to jewelleries to other properties as well. If you don’t have or are reluctant to pledge collateral you can go for unsecured debt consolidations which are tough to find. It helps you in many ways as you are responsible for a single repayment so you can organize your finances. Also you are forbidden from paying several debts at high rate so you save in some amount in longer run. Last but not the least you are shielded from the nagging calls of various lenders.

An amount ranging between £5000 and £ 75000 can be achieved. The rates are lower compared to other loans of same genre. These can be negotiated as there are numerous lenders available in the market. Repayment tenure for secured debt consolidation ranges from 3 to 25 years and is somewhere around 10 years if unsecured. One thing to be taken care is regularity in repayments as your collateral is at stake and faltering in this may endanger it for repossession (this implies for secured format). In general an honest repayment can improve your credit score.

Employment proof, bank statements are some of the documents which lenders wish to see to satisfy themselves about your repaying potential. It is suggested that you give an exhaustive search before focusing on a suitable lender. This way you can squeeze in best deal. Internet is the best option to achieve this.

Basic Principles of a Loan

Understanding the basic principles behind a loan can save new borrowers a lot of stress and make the borrowing process easier. This article will explore some of those loan basics.

A consumer loan is simply when a financial institution lends you money with the promise (from you) that you will repay the money. Most loan payments include both principal and interest.

Principle is the amount of money that you borrowed. Interest is the price paid for borrowing money; this is usually expressed as a percentage.

In an interest-only loan, the interest of the loan is paid off before the principal. It is important to understand this because many mortgages are interest-only loans. Using this kind of loan allows the lender to make a faster profit on the loan, and in return it also allows the lender to offer you lower interest rates.

Borrowers should understand that during the first years of an interest-only mortgage the entire monthly payment goes toward interest. Because of this there will be no decrease in the amount of the principle that was borrowed. In some cases, the initial interest-only payments are lower than the principal payments. This allows the borrower, who expects to earn more profit over time, to obtain a larger loan.

Variable Rates versus Fixed-Interest Rates

Aside from interest only loans, you may see offers for loans that are based on either variable rates or fixed rates. Credit cards generally use either the variable or fixed rates systems when calculating the interest.

Variable rate loans are based on the prime lending rate, and then some additional interest percentage is added in order to cover profits for the lender. Whenever the Federal Reserve raises interest rates, your bank will raise your interest as well. If the prime lending rate is low, variable rate loans and credit cards can be especially competitive with fixed rate loans.

Fixed rate loans and credit cards offer you guaranteed interest rates that do not fluctuate. You will know what your payments are each and every month based on the fixed rate percentage of the loan that you took out. This offers consumers more emotional security because they do not have to worry about their monthly bill increasing suddenly.

All borrowers should understand that variable rates are different than teaser rates. Teaser rates are temporary and last only for a limited time, usually three to six months. Once that period of time is over, the rate will go up and so will your monthly bill.

One of the most important principles behind a loan is establishing a good credit history. The fastest way to get a poor credit rating is to not pay your monthly bill or to be habitually late in paying your bill. These activities are usually reported to the three big credit reporting agencies and this information will stay on your credit history record for years to come. If you must take a loan out make sure that you can make the monthly payments on time.

If you have any questions about your loan or the interest that is being charged ask the credit person to explain it to you in detail. They are happy to do this. As a general rule, try to keep your non-mortgage debt payments below 10-15% of your monthly take home pay.