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Mounting debt that is becoming hard to cover with your regular income may be the precursor to either consolidating your debt or filing a bankruptcy proceeding. Perhaps you have debt collectors calling from the minute you wake until long after you have gone to sleep at night, and you have realized that you must do something right away to get yourself out of the financial mess that you have created. Debt consolidation is the answer for some borrowers, but you should be aware of the consequences of consolidating your debt as well as the long-term impact of doing so.
Debt Consolidation To Avoid Bankruptcy
Debt consolidation can have long-term effects on your credit report, but does not carry the same stigma that tends to be associated with a discharged bankruptcy. But while bankruptcy vividly and blatantly demonstrates your willingness to walk away from debtors without paying them the money that is due to them, debt consolidation shows that you want to renegotiate your financial picture to more favorable terms that would allow you to pay your debt off. In that regard, debt consolidation is always more appealing than bankruptcy.
Pay Off All Lenders, Make One Payment
In debt consolidation, you will take out a loan that will pay off other loans that are outstanding. Your old lenders are paid the principle amount that is owed to them, and you repay your new lender in monthly payments, usually for at least ten years, but sometimes for as many as twenty years. Your debt consolidation loan payment, in most instances, will be far less than the total of the payments that you were making to multiple lenders combined each month.
What You Should Include In Your Consolidation
You should select only those loans and credit cards that you are paying more interest on than your proposed debt consolidation loan carries when you do the consolidation. If you have loans that are being serviced with less interest, including them would not make much sense. You can consolidate personal loans, including secured and unsecured versions, as well as credit card balances, department store charge cards, gasoline charge cards, automobile loans, and private student loans when you consolidate your debt.
Most debt consolidation servicers will apply the first few payments that you make towards your new loan towards fees that they charge to originate your debt consolidation loan. Be certain to pay on your other loans until you have received notice that they have been paid off - failing to do so might negatively affect your credit rating. Any overage that you have paid to your old lenders is refunded to you once they have received the payoff from the consolidation loan servicer.
You might consider shopping online for a debt consolidation loan. Many online lenders of debt consolidation loans will offer you even greater reductions in interest than a walk-in bank, loan company, or credit union can. In addition, most of the paperwork to receive your debt consolidation loan can be completed in its entirety online via a secure server on the website of the lender.
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