Ebook Sample Content Preview:
First, let us say that there are definitely reputable companies out there who can help you with bad credit and overly huge debt hanging over your head. For some people, debt consolidation may be more attractive to you when you’re in trouble with debt.
Basically, debt consolidation entails taking out one loan to pay off another. The advantages of doing this include securing a lower interest rate or simply for the convenience of making just one payment per month.
Debt consolidation companies can assist by discounting the amount of the loan. If you are in danger of major default or even bankruptcy, these companies will “buy out” the loan at a discount and then pass the savings on to you.
If you are in serious financial trouble and bankruptcy might be your only option to recover, be aware that consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when you are paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank.
Keep in mind that consolidation loans are dangerous for impulsive people because all you are really doing is shifting all your debt from one place to another, effectively opening another channel of credit while freeing up your credit cards.
Some people then proceed to fill up their credit cards again making double the debt they started with, and paying up to 22% on their consolidation loan because they weren't paying attention to the APR when they signed up. Some loan companies are real unscrupulous and make it look like they are eliminating your debt, or they hide the APR from you.
The best way to consolidate your debt is to use a debt reduction program, not a consolidation loan. There are plenty of reputable companies out there who can help with this.
Try the non profit American Consumer Credit Counseling for more info. With their program, they don't lend you money, they work with your creditors to negotiate lower APR, and you combine all of your unsecured payments into one manageable payment.
You get a reduction in your interest rate and monthly payment, which pays off your balances much quicker than you ever could on your own, because interest is either eliminated or greatly reduced.
People with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner. This will incur less interest.