Debt ConsolidationJune 12,2008
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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