How To Consolidate Loans
Being seriously in debt can be a gut wrenching way to live. Waking up every morning knowing that horrible calls from creditors or debt collectors will soon begin can ruin a person’s day before it even begins. If this sounds familiar, the good news is that there are ways to consolidate those loans or debts and wake up in the morning feeling much better about life.
Debt consolidation loans
One answer as how to consolidate loans is with a debt consolidation loan. While it might seem counter intuitive to create more debt in order to pay off debts, there are reasons why this can be a good option.
For one thing, debt consolidation loans generally come with lower interest rates, which can translate into lower monthly payments. As an example of this, credit card debts (which are really a type of loan) often have interest rates as high as 18% or even higher. An unsecured debt consolidation loan might have an interest rate of 12% or even 8% and a secured loan could have a rate of 5% or even better.
strong>Consolidate debt through a balance transfer
Whenthe largest part of a person’s debt is credit card debt, it can be consolidated and reduced by transferring high-interest balances to a card with a lower interest rate. For example, there is now what’s called “no frills” credit cards with interest rates as low as 8%. No-frills mean there is no cash back or any other form of bonus but these cards do have good interest rates.
0% interest transfers
In addition, most credit card networks are offering 0% interest balance transfer cards. This is where balances transferred to the new card require no interest payments for six, 15 or even 18 months. This “timeout” provides the opportunity to get all or most all of the balance paid off before the introductory period expires – leaving the cardholder debt free.
Consolidating loans via consumer credit counseling
A third answer to how to consolidate loans is through consumer credit counseling. There are agencies and companies both locally and on the Internet that will develop debt management plans (DMP) that can consolidate loans and get clients debt free in about five years – depending on how seriously the person is in debt. Most of these companies and agencies will also negotiate with the person’s lenders to get interest rates reduced. However, there is nothing that credit counseling can do to actually reduce debts. A person who owed $15,000 when he or she enrolled in a debt management plan will still owe $15,000 until all the debts have been paid off.
Loan consolidation through debt settlement
A fourth alternative in consolidating loans is through debt settlement. However, for a person to be a viable candidate for this form of loan consolidation, the majority of his or her loans must be unsecured. These are debts where no collateral was used to secure them such as an automobile, a house or some other valuable asset. Credit card debts, medical bills, personal loans and lines of credit are all examples of unsecured loans that can be settled.
DIY debt settlement versus professional debt settlement
Individuals can negotiate directly with creditors to get debts reduced. However, to do this the person must be a very good negotiator and must have the cash available to pay for any settlements negotiated. As an example of this, if a person were able to negotiate a $7000 debt down to $4500, that person would need to have the $4500 in cash ready to send the creditor. If not, there is very little incentive for the creditor to settle.
Professional debt settlement can be a better alternative for most people because it eliminates the need to have cash available to pay for settlements. Also, professional debt settlement companies have experienced debt counselors who are very adapt at negotiating with creditors to get debts reduced by as much as 40% or even more. Also, unlike DIY debt settlement, professional debt settlement results in debt consolidation and usually comes with a very affordable payment plan.