What is Debt Consolidation?
Debt consolidation may be the answer for anyone drowning in a sea of unpaid bills.
Debt consolidation lumps all of your unsecured debts including credit cards, loans, household bills, service provider bills and any bills that are not secured by collateral or property (such as a house or a car) into one monthly payment.
Types of Debt Consolidation
There are several ways to achieve debt consolidation, including ones that does not require borrowing more money.
Debt consolidation options include:
1. Home Equity Loans
A popular method of debt consolidation, the home equity loan is a mortgage based on the amount of equity you have invested in your home.
It should be noted that home equity loans are secured by your house, which means if you fail to make payments on schedule, and according to the terms of the loan, you risk losing your house.
2. Personal Loans
Many banks and other lenders offer unsecured personal loans based on your annual income.
The amount that can be borrowed will vary from person to person, and not everyone will qualify for this type of loan.
To use personal loan proceeds for debt consolidation simply deposit the loan money into your bank account and pay off your creditors, or ask the lender to disburse the money to your creditors for you.
3. Private Loans
Some people may be able to borrow from family or friends and arrange very individual terms.
Borrowing from others in your personal life can be tricky business and it is advisable to make sure any arrangements are made in writing.
4. Debt Management Plans
Not everyone will qualify for a personal loan, and not everyone owns a house, or has someone in their personal life from whom they can borrow money for debt consolidation.
For people in this situation there is another option available - a debt management plan through a credit counselling agency.
Even if you have all of the previously mentioned options available to you it may be more advisable to seek out a debt management plan.
Debt consolidation through a debt management plan involves having a credit counsellor negotiate with your creditors for payments you can afford.
You end up making one monthly payment to the credit counselling agency which then sends the money to your various creditors.
Regardless of which type of debt consolidation plan you choose, be sure to check out potential lenders or your credit counselling agencies thoroughly.
It is also strongly advised that you destroy paid off credit cards and formally close those accounts to avoid the temptation to charge them up again.
When done carefully and with consideration, debt consolidation will ease your financial worries.