If your experiencing some challenges with a growing debt load and you are looking for some relief, this article will shed some light on the resurgence of debt consolidation and ways to use it. There was a point when debt consolidations was not very popular and lenders simply were not approving them for anyone. So, what is the latest and greatest in this loan option? They are appearing more now in the peer lending realm. If you are not familiar with peer lenders, they are collectives that are independently established, designed, and managed by individual investors who lend out their own money as a pooled effort. Debt consolidation loans are very popular because there is a belief that they can help someone get out of debt and/or minimize their overall debt load. While a debt consolidation loan can be an avenue to take control of debt in the form of credit cards, personal loans, etc; they can be tricky to create a method of management.
First, what is a debt consolidation loan? A debt consolidation loan is a way to place all existing debt and bundle it into one loan to payoff. It allows for the refinancing of any and all existing debt into a more acceptable time frame, interest rate and monthly payment. The key to making this type of loan work for you, is the examine what factors are keeping you from managing the loans you already pay and how does it work in the overall picture of your financial structure.
Debt consolidation can be an attractive tool if you clearly recognize what is at stake and understand the risks in bundling your old debt. Here are some rules to consider;
1. Debt consolidation is not the same as debt settlement. They are often confused because the idea of bundling debt gives the perception that a debts are in fact being ‘settled”. Debt settlement is in fact a entirely different beast, but can be used to establish a credit repair plan of action.
2. Debt consolidation can be achieved by means of securing some other asset to ensure the repayment to a lender. There are many claims in the marketplace that lenders need some form of collateral to secure a loan as you package this debt to one bundled payment. This is something that lenders can ask for based on their lending parameters. In the early 2000’s before the banking collapse, HELOCS or Home Equity Lines of Credit was the ideal loan for homeowners because it was an exquisite way to manage the entire household debt and allow for it to dissolve into the home equity as it grew. Fast forward to 2016 and the loan options are a bit more stringent, but not impossible to get. Recognizing your overall game plan is the key.
3. One monthly payment is certainly a huge advantage in creating a cohesive structure while building your credit. Old debt with missed payments can stop your progress.
4. Lowering your interest rates with existing multiple loans can be an advantage as long as it’s manageable. Too often debt consolidation is used to “float” debt that is not going anywhere unless it is met with an attack plan for repayment. Remember, your goal is to consolidate, not over extend yourself.
5. Leveraging some other asset can be a disadvantage especially when the interest is still higher than normal rates for this type of loan. You simply do not want to put yourself in a situation where you lose it all. Remember debt consolidation is a tool that you must think it through. You want a loan that maximizes your efforts for a faster payoff and will not keep you in a debt cycle.
Being in debt can be a double edged sword. Debt consolidation is one of those grey areas that has not always been understood by most people. You can use it to come out ahead and in less debt with a well defined credit repair plan and debt management plan. Credit repair is a beginning of restoring your overall credit profile and can be the strategic muscle you need. The very same debts you want to consolidate, it’s important that whatever loan you take out to bundle a bunch of old and/or existing loans, it must truly help you and not harm you. Be safe and work smart!
