Consolidation of Your Consumer Debt May Not Be the Best Option
A Credit Article Contributed by Mark Mcclelland
Consider These Topics before Choosing Consolidation of Your Consumer Debt.
You've probably all thought, at one point or another that as a consumer, there's bound to be a simpler way to pay all your debts, that there's got to be some form of debt consolidation that would help you out. Sometimes it isn't necessarily that you're drowning in debt, or that the interest rates you're paying are so high, it's simply that you have so many to monthly payments to make that you have a hard time simply keeping up with them.
Wouldn't it be nice, you've thought, to find an organization that would let you cut a single check to them and they'd disburse your funds to your various creditors on you behalf, at the appropriate time and without missing payments through forgetfulness or carelessness? Pay them a little monthly fee and you're done. Like ice cream on cake, that would be nice indeed.
And believe it that you're not alone in this wish. Thousands of people have been using both secured and unsecured credit to fund such "consumer debt consolidation" on their own for the last decade or so. Last year, about 15% of the approximately $20 billion in credit card balance transfers - especially those where you get a 0% introductory rate credit card deal - involved consolidation of more than one credit card balance into a single card.
To be sure, the lure of debt consolidation, from the consumer viewpoint, has a massive pull. But whether or not this is the best way to manage your remains to be seem
What Kinds of Consumer Debt Consolidation Options are There?
Without a doubt there are a lot of them, with some providing better solutions than others. These include using unsecured loans to pay off a number of your smaller debts by going to your favorite bank or other lender and borrowing a sum sufficient to pay off all your other loans. And because the loan is unsecured, you won't be putting your home at risk in the event that you end up defaulting on your payments. But the other side of this coin is that because it is unsecured, the interest rate you're likely to be charged might set you heart a-twitter.
Or you could apply for a second mortgage. In this instance the second lender has to wait in line behind the first lender in the event of your defaulting on your payments or your selling your house, and is able to collect what it's owed only after your primary mortgage has been paid off. But you can see that in this case, even if you keep up with your payments, when you sell your house you're going to have to pay off the second mortgage as well.
And there are other, less attractive, solutions as well. The Internet is a good place to go looking for one.
And the Benefits of Using a Consumer Debt Consolidation Service Are?
Actually, the potential advantages of debt consolidation, from the viewpoint of a consumer are several, as are the disadvantages
On the plus side, it's possible that you may get a decent reduction in the interest rate you'll pay when compared to the averaged rates of you multiple credit accounts. In addition, you'll only have a single creditor to deal with.
On the other hand, the disadvantages are that there may be extra fees and charges applied by the debt consolidator. In addition, the costs of settling existing loans might include pre-payment penalties, and in establishing new loans fees, charges and commission can be a significant hit.
Many borrowers, especially those already in financial straits, may not take the time required to investigate the many alternatives available to them, like negotiating with their creditors themselves, or getting help from free credit counseling services.
