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Debt Consolidation - The Choices Are Out There

At this point, there really has never been a better time to consolidate your debts. If you can afford (and can get approved) for a debt consolidation loan, rates are at 40 year lows. Which can be a great thing, especially if you are having trouble. But they are not the cure-all, and certainly do not work for everybody. If you are having difficulties meeting your monthly payments for credit cards, or worse, mortgage payments, you may not even qualify for a debt consolidation loan. What's more, consolidating your credit card debt (which is known as unsecured debt) can be a disaster which can mean the repossession of your house. It's important to address this point first.

Debt Consolidation Loan Disadvantages

Ok, so you are having trouble meeting your minimum monthly payments on your credit cards. You understand that you may have overspent, but it's OK, because a debt consolidation loan will save you. All you have to do is put up your house as collateral, and your interest rate goes from 18 to around 5%. This is obviously pretty good. But what they don't tell you is that this is not a fix-all. Many Debt Consolidation Advisors clients come to us after they have already run into problems with both their debt consolidation loan and their credit cards. By this point, there is only so much we can do.

Debt Consolidation Loan - Secured For A Reason

The difference between credit card debt and debt consolidation loan debt is not as simple as it looks. The difference between the two debt forms is that one is secured, and the other is unsecured. What this means, effectively, is that secured debt is tied to a possession, such as a house or a car, whereas unsecured debt is not. Let's say, as an example, that someone is eeking by with their credit card debt by paying the minimum payments. Obviously a debt consolidation loan will save them money, right? So they get a loan, "consolidate their credit card debt", and then everything's OK. Now, let's say this individual loses a job, or worse, develops a medical problem which means they will not only be off work for a while, but also means they will be paying healthcare bills. It's important to understand that if you have problems paying back your simple credit card debt, "debt negotiation" is possible, or credit counseling, or even bankruptcy in the worst of cases. What this means is that in a harsh emergency, you can, with the help of a professional agency, alleviate your debt. On the other hand.

The "Dark Secret" Of Debt Consolidation Loans

With debt consolidation loans, if the situation above played out, and you lost a job, and couldn't pay back your debt consolidation loans, your house would simply be repossessed. Simple as that. Although many lenders will do their best to accommodate you, repossessions are a fact of life. So, suddenly this emergency situation has become so grave that you are in a lot of trouble. With credit card debt, however, this could never happen.

Unsecured Debt - Important Considerations

It is important to note that we never, ever, advocate not paying debt. This is not what we at Debt Consolidation Advisors are about, and we would never suggest this. But, unsecured debt such as credit card debt, medical bills and some other debts can be effectively "negotiated" by professionals in cases of emergency. In reality, if you do not pay your unsecured debts, your creditors may be able to take you to court, but they cannot touch your possessions. This is the biggest reason why debt consolidation loans can be very dangerous.

The Other Options

There are other ways to consolidate your debt. Consider, as an option, borrowing from your 401K (which is possible, but not the greatest idea), transferring your balance to a new credit card (which frequently offer low interest balance transfers for short periods of time or even a whole life insurance policy, which feature a cash value. If you are having real problems though, and have experienced any of the issues addressed above, it won't hurt to seek professional debt help. Agencies like Debt Consolidation Advisors offer credit counseling (for those with lesser debt issues), as well as debt negotiation, which can save you thousands of dollars, and enable you to get back on a path to financial freedom. Contact us here.

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