2010

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Debt Consolidation Loan - Debt Tips and Debunking Myths

 

The picture wasn’t rosy even five years ago; Americans were deep in debt then, as they are today. For many, a debt consolidation loan was a clear sliver of light in an otherwise gloomy environment. As opposed to other options to dealing with large debts, being consolidated was the choice not only of the middle class but even by minorities.

 

According to the Chamber of Commerce:

 

 

“Minority households and businesses are 6% more likely than their counterparts to opt for debt consolidation to help leverage financial obligations.”

 

What is Debt Consolidation Loan?

 

What is a debt consolidation loan anyway? Consolidation is the complete replacement of a multiplicity of loans with one monthly payment. The interest rate is often lowered to help facilitate the complete repayment of all the debts incurred within a particular span of time.

 

People go to consolidation companies to protect their financial interests- by keeping their credit ratings robust. The only way that any kind of consolidation would work is by sticking to a plan. Any more slacking off at this point would be tantamount to ruining one’s own financial future.

 

Is Debt Consolidation Loan Helpful?

 

According to Tarik Rashad Smith, the Chief Executive Officer of California Credit Solutions:

 

“Yes, but they should not replace pre-emptive credit management, such as paying bills on time and maintaining low balances. Debt consolidation is like a Band-Aid. It temporarily heals the wound but can leave scars on your credit history.”

 

Smith continues with:

 

“We look at their credit report first to determine how much open debt they have and the best plan of attack. Do we pay down four credit cards and close two?" If clients don't see a score improvement, their one-time enrollment fee of $699 is reimbursed.”

 

Joan Pratt, a Certified Public Accountant and a former Baltimore City Comptroller, sheds further light on the matter of debt consolidation loan:

 

“Debt consolidation is not necessarily risky. But if you consolidate, find a manageable payment, and then create more debt, and that’s when you get in trouble. For example, taking out a 15-year home equity line of credit to pay off $20,000 in debt could cost more than $18,000 in interest.”

 

Debunking Myths

 

First off, all consolidation programs have fees. It’s just how it is. But the company you are approaching for help should make it clear how much you would be paying for their services.

 

Second, debt management and a debt consolidation loan are not the same. Debt management is getting a comprehensive picture of your financial situation, and the creation of a particular program that would address weak points, such as debt.

 

Consolidation is basically taking out another loan to pay off smaller loans. It emphasizes a “lump sum” payment with lowered interest rates. The negotiation for lower interest rates will be done by the consolidation company.

 

Third, consolidation is not the only option. There are many avenues that you can explore in dealing with soured housing loans, etc. However, for private loans that involve credit cards and similar kinds of debt, consolidation is simpler to manage. Nevertheless, to end your debt problems, discipline must be exercised completely.

 

 

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