What are some good companies that provide debt consolidation loans? Are these loans a good idea? How do you choose a debt consolidation company?

Put simply debt consolidation loans are just larger loans that pay off several other smaller loans. They can be very helpful in helping people to reduce their overall debt repayments but debt consolidation loans also have their downsides. They are helpful in circumstances where the debtor is trying to keep up with several different loans and can simplify things down into one monthly statement and one, hopefully lower, monthly payment.

Also, you’ll find that your monthly debt payments decrease if you use a debt consolidation program that stretches your payments out over a longer period of time. This means that you’ll pay out less each month and you can free up some cash.
A tempting (and sometimes successful) strategy is to use a debt consolidation program to manage various high-rate revolving debts. As an example, you might have numerous credit card balances with high interest rates. With a debt consolidation program, you might be able to get a handle on that debt and lower the interest rate (APR) that you’re paying. In general, credit cards have higher rates and secured loans (such as home equity loans) have lower rates.

Debt consolidation loans do not get rid of your debt. Sooner or later you will have to cut down your spending and funnel all your resources into debt repayments. The big downside of debt consolidation loans is that you may feel as though you are dealing with your debts when in fact you are simply stretching out the time period for repayment.

Another big downside of debt consolidation is that you will probably end up paying more in interest with debt consolidation loan over the full lifetime of the loan than you would with your current debts. The upside is that you can more easily manage your cash flow now and if this is part of a long term plan to become debt free then that is a good thing.

Debt consolidation loans are just like any other product and you should shop around to find the one that best meets your requirements. Check out your
local credit unions or your current bank in the first instance. These are reputable sources and will give you a fair deal, and you should be communicating with them anyway about your debts.

The Internet is a helpful place to look for debt consolidation and checkout ‘person to person’ loan sites. Try to avoid unasked for junk mail offerings.
Look for advice on managing your credit and maintaining your credit score because loans are most difficult to come by just when you need them most.

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Debt consolidation loans – remove the stress from your back

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. 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 someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors 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, incurring less interest.

Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.[citation needed]

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