The Ins and Outs of Debt Consolidation
Debt is one of the shocking but inevitable realities of day to day life for the average citizen today. From student debt and credit card debt to loans for purchasing houses or cars, debt is unavoidable for most, and rather hard to pay back. If you are juggling a whole lot of debt at once, it also means you are dealing with a number of different due dates for monthly installments and different interest rates, which makes them really hard to handle and makes it even more likely that you end up missing a couple of deadlines. This is where the idea of consolidating debt comes in. If you seem to be under tremendous stress because of the burden of ever-mounting debts and the fact that you are just not able to make consistent and timely payments, you could consider debt consolidation. Debt consolidation could be effective in easing the burden of debts. This could be the best choice as it would assist you in making debt repayment a definitely more achievable goal.
Consolidation of debt simply translates to “putting your debt together”. If you have several lines of credit, consolidating them would mean clubbing them together into a single loan with a single interest rate so that you can make only a single payment every month till it is all paid off. Unfortunately, like most financial matters, it is hardly that simple.
Private and Federal Student Loans Cannot Be Consolidated Together
All federal loans could be consolidated together effectively into one single balance and a single lower interest rate. You are actually, entitled to opt for consolidation of all your existing federal loans once you have left school or after graduation etc. In case you have some private loans, you need to consider consolidating or refinancing them separately. You could opt for refinancing both your private and federal student loans together. Refinancing means a new loan and a new rate of interest. Debt consolidation implies a combination of all your existing loans into one. You are not really taking out any new loan. You must know that if you are thinking of refinancing your federal student loans, there would be no scope for you to be eligible for any loan forgiveness programs in future.
Debt Consolidation Does Not Obliterate All Your Debt
You must understand that the only thing debt consolidation does is to merge all the balances into a single simple payment with a lowered interest rate. This makes it easier for you to repay the loans, but it isn’t a panacea that will erase all your debts.
A New Lender
Mostly, consolidation is done through a third party. On consolidating, you will not be paying your lender directly, but will instead pay the agency which will, in turn, pay the creditors. Since they have good relationships and agreements with several lenders, they will be able to convince them to agree to a lower interest rate as well, ensuring that your loan consolidation goes through.
Two Consolidation Loan Options
There are two types of debt consolidation loans you can go for- unsecured or secured. Secured loans use an asset of yours like your house, car, or any piece of property to fall back on if you default on the loan. Unsecured loans have no collateral, hence higher interest rates so that the lender can recover as much of his money as early as he can. They are based on your credit history and not granted if you are a high-risk borrower.
Interest Rates Vary Greatly
The attractive low interest rates that are advertised when the loan is being pitched may not be what you get if your credit scene isn’t great. Some good rates are available for a short time only, so you must research as much as you can, read online debt consolidation reviews, and ask your agent what sort of interest rate you are likely to get.
Debt Consolidation Works If Only You Stop Accumulating Debts
If you want your debt consolidation plan to succeed, you must stay away strictly from accumulating more and more debts while the repayment process is in progress and you must close your account after repaying your debt.
You must always remember the above-discussed debt consolidation facts while you are consolidating for any sort of debt including student loans or credit card debts. It would be a good idea to consult a professional debt consolidation specialist who could guide you every step of the way.
Author Bio: Peter Kramer is a financial consultant and debt mitigation expert. He has worked for a number of private firms and non-profit agencies in the past and recently taken to blogging to write about solid debt management strategies.