Debt Consolidation

Abstract:
Debt consolidation may be referred to as the process where several debts are bundled together and wherein a single payment is made to close all the debt accounts. The process of debt consolidation makes it possible to do so because the repayments made for closing the debt accounts are usually lower than the outstanding amounts (of all the debt accounts) taken together. By doing so, the debtor is also required to make the repayment to only one creditor.

(I) Identifying the debt consolidation needs and hiring the services of a debt consolidation firm:
Once the debt accounts, which require immediate closure has been identified, the next step is to hire the services of an efficient debt consolidating firm. There are many advantages of availing a debt consolidation program from various debt consolidating companies operating in this field. These firms usually take care of the entire paper works required in the process. However, one has to be very careful about the authenticity of the services offered by these firms and selecting the correct debt consolidating firm decides the success of the process.

(II) Aspects of debt consolidation:
In debt consolidation, the rates of interest are usually reduced. There are a number of companies who fund for the consolidation of debts. Financing debt consolidation may be done in one of the following ways.

    + For those possessing property, this may be used as collateral:

For those owning a landed property like a house may avail of a debt consolidation loan against the house. These are usually referred to as secured loans. Secured loans usually have lower rates of interest. The reason being, in the event the debtor fails to make the repayment, the house may serve as collateral and the creditor may confiscate the house owing to non payment. 

    + For those not owning a house or property:

Individuals not possessing a house may get their debt funded by opting for a personal loan. Depending on the interest rates of the different credit cards, the loan may be repaid in accordance.

(III) Analyzing the feasibility of a debt consolidation program:
There are two basic facts, which required attention in this context. One is the term of loan repayment and the other is the rate of interest. 

    + Rates of interest:

If it is found that the debt consolidation program being offered requires the debtor to pay more money (by way of the interest rates), it makes no sense in availing the program. What is required is the loan should be offering an interest rate, which essentially should be less than the interest rates lurking on the cards. 

    + Debt consolidation loan term:

If an individual discovers that he may be in a position to repay his debts within a span of half a year or so and for refinancing his existing loan, the term being offered by the debt consolidating firm is quite long, he may think twice before opting for the debt loan programs.

(IV) Objectives of a debt consolidation program:

    + By availing a debt consolidation loan program, one may avail of the following benefits:

Enjoy rates of interest, which are comparatively lower
The monthly payments required to be made are also less.
Avoid calls from collectors
Avoid paying penalty for late payments.
Repair ones credit history to some extent
Off load ones debts
Become debt free in just one payment.

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