28 May 10 Debt Consolidation Benefits and Drawbacks

Debt consolidation comes into play right after you realize that you are in an urgent need for money because you are deep in debt and interest rates, and the premiums you pay on your loans are no longer affordable. So in case you feel that your current loans are no longer manageable and can easily result in bankruptcy, it’s high time that you considered borrowing money for consolidating debts. At best, unpaid debts can have a strong impact on your credit history and result in poor credit report; and as a last resort, you can lose your property. However, it makes no difference how appealing debt consolidation loan can be, you should realize that this is nothing else but one more debt and if you obtain it unconsciously, it can lead you to even more serious financial problems such as bankruptcy.

The main idea of debt consolidation loans is to combine all the debts in one manageable loan, one interest rate and APR (annual percentage rate) for one simple reason - paying off this very loan as soon as possible. Basically, such option as consolidation of loans is available to all borrowers irrespective of credit score and status but still you should remember that poor credit leads to much higher rates and more difficulties with applying and getting approved for this type of loans. All loans designed for consolidating debts are broadly divided into two categories: secured and unsecured loans. Secured loans require putting any valuable property against the loan as a collateral. Unsecured loans, in their turn, do not require any security but result in much higher rates and less beneficial conditions. You choice should depend on your needs, your budget and your expectations. In case you hesitate whether to choose secured or unsecured loan, it’s advised not to tempt the fate and consult with a qualified professional on this matter.

Debt consolidation loans, as well as all the rest of loans available in the market today, have their benefits and drawbacks, so you are to be well-aware of them before you take a decisive step and consolidate your debts.

In particular, the benefits are as follows:

1) Lower interest rates and monthly payments. It’s useless to doubt that this benefit is not the major one because this is actually what all debt consolidation process is about.

2) One loan and one lender. You don’t need to negotiate with many lenders every time you need to settle this or that issue regarding one of your loans. Debt consolidation loan means having one arranged loan and dealing with one lender you choose consciously.

3) Credit history improvement. Timely and regular payments will definitely improve your credit score and prove your paying capacity.

As for the drawbacks, you should consider these:

1) Higher overall cost. There are companies which conceal high additional fees you are to pay for the debt consolidation loan with low rates in order to attract the clients.

2) Property loss. If you fail to pay this consolidation loan, you can lose your property for all.

3)  Scams. Since debt consolidation loans are highly demanded, there are quite many scams. Do proper research and consult specialists before you obtain debt consolidation loan and never trust offers which sound too good to be true.

28 Jun 09 Debt Management Plan Know What Plan Works Best For You

Debt management plans (DMP) work to reduce your unsecured debt. They can also reduce your interest rates with most types of unsecured loans. To know what plan will work best for you, identify your own needs first. Then look for a company that has answers to your questions, reasonable rates, and a good record.

Identify Your Needs

Before you begin searching for a DMP, identify which accounts you want handled. Interest rates on credit card accounts and bills, such as medical, can be lowered with a DMP, but some types of accounts, like mortgages and student loans, can’t. DMP can still handle payments for these accounts, but they will charge you a fee for the service.

Make a list of the accounts you want handled. Include the lenders’ names and account balances. You can use this information to get quotes from DMP companies. Do not give account numbers or social security numbers until you have researched the company and signed a contract.

Compare Pay Off Dates And Information

As with any service, you want to compare companies before choosing one. To find a reputable plan, ask about pay off dates and the process. Legitimate companies will be able to give you specific closing dates for each account based on the balance and creditor’s name. All DMP receive the same low rate from creditors, so pay off dates should be the same.

Companies that require money upfront or give vague dates should be avoided. Such companies are either more interested in taking your money or are not qualified.

Research Rates

With a list of reputable companies, begin researching rates to find the best deal. Some companies have a small start up fee with monthly charges of no more than 15%. Other companies are subsidized in part, and may have a reduced fee, especially if you have poor credit.

Companies that charge a large, partially refundable initial fee are betting that you will drop out of the program before your accounts are paid. They keep your money without providing service. You should be cautious with such plans.

Check With Others

Another step to checking a DMP company is to look up their record with the Better Business Bureau or your state government. You can find records of past complaints online with these agencies.

Taking the time to investigate DMP companies can save you money and headaches later on.