Debt Consolidation Loans: An “Early” Option

Consolidation of loans is often a consumer’s first approach to resolving mounting credit card or unsecured debt. This method can be effective providing the debt is not completely out of control or already delinquent, and providing the company providing the loan will give you the terms you need to eliminate the debt without getting you into an even worse situation. request free info >>

Unsecured debt includes your credit cards, discount store cards, gas cards, medical bills, and any other debt that is not related to your property, car or collateral of some sort. Since it is not easy for credit card or loan companies to take your home or other valuables if you should fail to pay, they protect themselves by increasing your interest rate the minute your situation puts you into a “high risk” category. You can be labeled as a bad, “high risk” without ever missing a payment or exceeding your limit. If you should be laid off from your job, or if you begin receiving disability income, you could suddenly get an increase in your interest due to your higher risk status. Also, if you have several credit cards on which you are paying only the minimum payment, and you take a new credit card, companies are likely to see you as a risk. They jack your interest rate to ensure that they actually collect as much as possible of the principle before you default on their card. It doesn't take an advanced math degree to figure out that at 29% and up, a company can collect many times the principle—and keep on collecting to their own profit while keeping you from ever getting the bill paid off.

If you have the discipline to pay off your debt without incurring more, and if you are in good standing on your current debt, you can consolidate all of your unsecured debt into one loan. You will pay less interest on one loan than you are paying on multiple cards. However, in order for debt consolidation to work, you must heed the following factors:

1. Destroy all of the old credit cards that you are consolidating. Otherwise, you will be tempted to use them—just, occasionally. Before you know it, you will be right back where you started with the consolidation loan added to it.
   
   
2. Do not consolidate by simply transferring your balances to a new card. This almost never works, partly because people do not destroy the old cards, and partly because they can continue to make purchases on the new card as well.
   
   
3. If you want to try consolidation, contact a loan consolidation company or your local bank first rather than just transferring a balance. True loan consolidation is an act of planning on your part and requires you to stop spending. Ask for a fixed interest rate—not a variable one, even if the fixed one is a point or two higher. Also, find out what penalties will be applied if you should be unable to make a full payment in any given month.
   

Debt Consolidation is different from debt negotiation. In consolidation, all of your debt is combined in one new loan, usually at a lower interest rate. You use the loan to pay off all the other debts, or, in some cases, the loan company will actually send the checks for you and may even require that you close the other accounts. They do not, however, negotiate to lower your principle with the other companies, which is a strategy in debt negotiation. Thus, if you are already in default or have seen your balances increase due to unreasonable interest rates, debt consolidation may not be the best strategy. To find out if debt consolidation is still an option for you, complete our user friendly form and let us put you in touch with reputable debt consolidation companies.
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Interesting Tidbit: Common misspelling made by people searching
for us on the Web are consolodation and consoladation.

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