HomeIncome Magazine MailBiz Edition - Issue V-7105


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A Loan For Debt Consolidation Allows You To Pay Several Creditors With One Simple Payment

Paring Down Payments

A Debt consolidation loan is the creation of one new loan for the purpose of paying off all other current loans and credit card debts.

A loan for debt consolidation allows you to pay several creditors with one simple payment. A debt consolidation is considered a personal loan.

The primary purpose behind debt consolidation borrowing is to lower your interest rate while providing the debtor with a monthly payment she or he can afford. It also prevents an adverse affect to the debtor's credit rating as well as keeping assets from risk.

A debt consolidation loan may be well advised for someone who is having a difficult time making monthly payments on current loans that carry a high rate of interest. The additional benefit of debt consolidation is that the consolidation eliminates the debtor's contact with the various creditors. This stops collection calls and correspondence.

What you'll need to qualify for a loan for debt consolidation:

* A written budget, showing each month's expenses and income.

* Proof that you have a steady source of income adequate for the repayment of the debt consolidation loan. Pay stubs and/or tax forms would suffice.

* You may need proof of collateral, such as home equity documents or car title.

* You might also need a co-signor if your credit is not adequate.

You can pay off a wide variety of debts and loans with a debt consolidation arrangement. Eligible bills include medical, credit card, retailers, personal loans, student loans and even checks returned for insufficient funds.

Before considering a debt consolidation there are several factors you should weigh. They are:

* Fees involved in consolidation. While a small fee is common, reputable debt consolidation firms will not claim to reduce the amount of debt you owe nor will they charge you a substantial upfront commission to do so.

* The consolidation interest rate. What you want is a fixed rate loan and a rate that is lower than the average rate of your current debt.

* Consolidation loan payments. You'll want a monthly payment that is lower than the combined payments of the current debt, although this should not be accomplished by any considerable lengthening of the repayment time.

* Whether your credit rating will be negatively affected. If the consolidation firm is not clear on this, go elsewhere.

As part of your debt consolidation loan consideration you'll want to look realistically at your total debt, determining exactly the amount you'll need to borrow for consolidation. You should also contact all lenders and see if any will offer a settlement (keeping in mind that payoff off a settlement figure rather than total debt may negative affect your credit rating.)

Your next step would be to put down on paper your monthly budget, including all your expenses as well as your income. Do not neglect to give yourself some leeway - a small emergency or miscellaneous cost figure. Take a good hard look at what you can afford to repay if you borrow for consolidation.

Debt consolidation advantages:

* You can save money by decreasing the interest rate you are paying, which in turn decreases your monthly debt consolidation loan payment.

* You will only have one loan to worry about paying each month.

* You'll only have one creditor to focus on, which means the others will not be contacting you.

Debt consolidation disadvantages:

* You're probably going to be extending the time period in which you are paying your debtors, thus increasing the total cost over time.

* You may have to offer your home or your vehicle or other significant properties as collateral. This puts them at risk should you default.


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