How to Consolidate All Debt Into One Payment
Managing debt is a complicated process that requires making a plan. While the ideal situation is creating a budget and managing the debts, in some cases, it might no longer be possible to pay the high interest on loans and credit cards. Debt consolidation is one method of getting back on track and bringing down the total monthly payments.
Taking Consolidation Loans
Among the options to consolidate all debts into one is taking a loan specifically for the purpose of consolidation. Consolidation loans are available through traditional and non-traditional lenders, so it is important to look around for the best interest rate before applying.
After finding the best loan rates and comparing lenders, obtaining the loan is primarily a matter of filling out the application paperwork and determining the total amount necessary to pay off all of the existing debts. The lender will either approve or disapprove the loan based on the company’s particular policies.
Even some debt relief companies will offer consolidation loans, depending on the type of relief the company focuses on providing.
In many cases, the best rates on unsecured consolidation loans are based primarily on credit ratings. Someone who is beginning to struggle with debts but still has a good credit rating is likely to get reasonable rates. Those who have poor credit might find that the interest of this type of consolidation loan is simply not low enough to make a dramatic impact on the monthly payments.
When the loan is approved, the funds are provided and used to repay all of the current debts. That effectively consolidates the debt into one monthly payment that ideally has a much lower interest rate than the current debts.
Using Home Equity for a Debt Consolidation Loan
It is also possible to consolidate all debts using home equity loans. The use of home equity is similar to taking out a consolidation loan, but it uses equity on a home to secure the loan and thus provides a lower interest rate than the basic consolidation loan.
Applying for the loan requires finding a lending company that provides home equity loans and applying for the funds. The process is similar to taking out a home loan, and it will require providing proof of income, past tax statements and other forms of documentation. When the loan goes through the funds are used to pay the current debts and put all of the loans into one payment.
Working With Debt Consolidation Companies
Taking out a loan for consolidation is not always the only or best solution for paying the debts. Another option available for resolving significant debt is working with a debt settlement company. These companies do not usually provide loans and will instead suggest a program of aggressive negotiation combined with an FDIC-insured Special Purpose Account in your name and accessible only by you. The settlement company employs professional negotiators who will work hard to lower interest rates and balances on the current and outstanding debts and will attain your permission before releasing any funds to creditors.
When the company works through consolidation and negotiation, the process is slightly different than obtaining a secured or unsecured loan.
It starts with finding a legitimate and favorably-reviewed consolidation service, providing and confirming basic information and signing up for their program. Programs will differ with different companies so paying attention to the details and their payment plan is a vital step in understanding the process. You should never be charged any upfront fees for this type of a service. The service should be performance-based and no payments should be made to the debt settlement company until actual debts are settled.
After signing up, the company will begin the process and help you develop a comprehensive program which leads to negotiating a lower interest rate on the current debts. This effectively helps bring down the immediate and overall cost of loans and credit cards. Instead of paying each creditor directly, customers pay into an FDIC-insured Special Purpose Account managed by the consolidation company. Once in a program, the consumer will make one manageable, prearranged payment, which is then used to pay all of the debts in the program one by one.
Consolidating debts into one manageable payment and resolving debt is often a less-difficult task with professional help. It simply requires looking at all of the potential options and selecting the solution or program that works best, and is available to you.