Reed Financial Group

You may have considered debt consolidation as a possible solution to your debt problems. However, you may not know that there are two different types of consolidation to consider.

The one most often discussed is a secured debt consolidation loan. Usually, the loan is secured by your home equity. Often you will either take out a home equity loan or you will refinance your entire mortgage, secure a larger loan, pay off your first mortgage, and receive the difference between that loan and your home’s value in cash.

However, if your home has not built up enough equity, you don’t want to take out a new mortgage, or you don’t own a home, you may still be able to get the second type of consolidation loan: one that is considered unsecured.

Secured vs Unsecured Consolidation Loans

Unsecured consolidation loans are different because they require no collateral. If the loan is not paid in full, you don’t run the risk of losing any property as a result. With a secured loan, the bank can take your home if payment is not made.

Because the unsecured loans are riskier for the lenders, you will end up paying more in interest rates and may have to pay off the loan in shorter time. That might also mean you’ll face higher payments than you would with a secured consolidation loan.

Another difference is in the amount you can borrow. Secured consolidation loans are rarely issued for less than $10,000. Unsecured consolidation loans, on the other hand, are limited at less than that amount.

Reasons to Choose Unsecured Debt Consolidation Loans

If you’re trying to decide between a secured and an unsecured consolidation loan, then here are some factors to think about:

o Do you have collateral? If the answer is no, then your only option is an unsecured consolidation loan. If the answer is yes, then think about whether or not you want to tie your home to this type of loan.

o How much debt do you owe? Add up all of the debts you want to consolidate. If the amount equals more than $10,000, then you’ll probably need to choose a secured consolidation loan. For lower debt amounts, you can choose either type of loan.

o What are the interest rates on your debt? Remember that an unsecured loan is going to involve higher interest rates than a secured one. If those rates are going to be close to what you are paying on the debt you want to consolidate, then you may want to go with a secured consolidation loan instead.

o Do you need lower payments? If the purpose of consolidation is to make your debt payments more manageable, you may not want to choose an unsecured loan. Because the terms of these loans are usually shorter, you may end up paying significant monthly payments. If you just want to eliminate some high interest debt or make managing your debt easier, then either type will work well for your needs.

Before you choose either type of consolidation loan, make sure to shop around and secure the best loan deal available.

By: Paul Sarwana

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Repaying numerous loans and facing the hassles of creditors proves to be tedious after some time. So if you can’t face all this, it is better to seek the help of a debt consolidation company. A debt consolidation company replaces all your loans with a single debt consolidation loan. You only have to pay the debt consolidation the monthly payments; the company then pays all the creditors. You then don’t have to handle the creditors or face their bickering.

There are basically two types of debt consolidation loans; secured and unsecured. In the secured loan, you have to pledge collateral for the loan. If you fail to repay the loan, this collateral is seized by the company. In the case of the unsecured loan, there is no need of any collateral being pledged. However, the amount that can be borrowed here is lower, with a higher interest rate.

Christian debt consolidation companies and regular debt consolidation companies basically provide the same facilities. The difference lies in their beliefs. The Christian debt consolidation company ensures their fellow Christians that it is Biblical to take advantage of any program that is run by a Christian debt consolidation company. Christians generally feel it’s wrong to fall into debt. Some say that it is not permissible for a Christian to owe money even for auto and home loans. However, there are others who feel that it is okay to sustain some form of debt, as long as the item the loan is taken for has potential worth appreciating.

Christian debt counseling companies say that it is allowed to be in debt if the loan was taken to produce an income or if the value of the item equals or exceeds the amount borrowed. Christian debt counseling companies say that we have to pay back whatever is borrowed. They quote from the scriptures that “The wicked borrow and do not repay, but the righteous give generously” (Psalm 37:21).

Christian debt consolidation companies feel that living life is increasingly more difficult with increasing debt. So they are committed in helping people gain control of their finances and to become debt free. It is due to all these thinking that the christian debtor generally feels that they cannot deal with a regular debt counseling company, but are comfortable with a christian debt consolidation company. Christian debt consolidation companies claim to let people refinance their debt at lower interest rates; sometimes even zero interest.

However, whichever debt consolidation company you choose, it is better to do some background check on the company. Find out how long the company has been around, and if there is no information, then there is no need of approaching the company. The best way of finding more information on the companies is by checking with the local Better Business Bureau, state Attorney General and the consumer protection agency. You can also find out from the Attorney General if a license is required to run a debt consolidation service, and if the debt consolidation company has a license. However, never be fooled of any company claiming of being not for profit; no one works without profit.

By: Darnell Scott

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Some people think that credit card consolidation can help to simplify their debts and bills repayment. For example, if you have a line of credit that can cover all your current loans and debts, you can transfer all your various bills and loans onto that single credit card so that you only make a single monthly repayment in future. However, do check whether your credit card transfer fees are worth the effort. Typically, you may need to pay around 3% to 5% of the transferred balance, although from time to time, there are some offers with zero or low transfer credit cards. Although credit card consolidation is convenient, note that it is only used for smaller debts and bills given the limit of your line of credit and the high interest on your credit account balances once your grace period is over.

On the other hand, debt counselors usually advise their clients to cut up their credit cards and terminate their line of credit such that they can help to restrain themselves from further buying on credit again which worsen their debt to income ratio. Although it can be very inconvenient without credit cards in the first few weeks, it is the most simple and effective way to avoid further debts when you buy what you can afford in full cash. This allows you to have more disposable income to repay your current debts quickly.

Nevertheless, it can be more effective to look for debt consolidation assistance from finance companies and loan brokers. These debt consolidators will provide you with a new personal loan which covers all your other high interest credit card bills or delinquent debts. The new monthly repayment for these debt consolidation loans is usually reduced compared to what you are paying for all your debts, but this is at the expense of a longer loan term. For those of you with cars or property, they can be eligible for secured debt consolidation loan collateral to lower the interest fees charged by the banks. For people with very bad credit, this can be the only feasible way to consolidate your loans with acceptable interest fees. The downside to secured debt consolidation loans is that there is a higher risk you must bear in the even that you default on the monthly repayments, you may lose your loan collateral.

Note that debt consolidation can lower your monthly repayment such that you have an easy time repaying your loans and this helps to quickly repair your credit ratings. However, your loan principals remain as they are. Although debt consolidators can send debt settlement letters to negotiate for interest discounts and forbearance, your main savings over the interest fees will come after your credit score is restored to good levels.

By: Morgen King

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One of the most asked question when it come to debt is “what is the best way to get out of debt?” Well, it definitely have something to do with drafting a bailout plan and stick to it (read: work). Certainly, if there’s anyway you can ‘cover’ high interest rate loans with lower ones, do take the plunge. Even when the amount is not much (considering the bad credit standing you have), you’ll save quite a bit from the switch.

Anyway, the proper way of dealing with debts is to come to terms on how much you actually owe. Ask anyone in debt about the amount they owe and you’ll find that most people rather not think about it. Sadly, that does not change the fact that the debt will continue to snowball unless you DO something. List out all your debts, like this:

Credit card 1: $3550 (37% interest – paying only minimum payment)
Credit card 2: $1720 (37% interest – paying only minimum payment)
Credit card 3: $800 (18% interest – current)
Personal loan: $23,750 (6.9% interest – two months overdue)
Car loan: $18,300 (6.5% interest – current)

Now you have a clearer picture of how much you owe, even though the very thought of it make you cringe. Next, decide how much you have left over every month after deducting basic expenses. It should look like something like this:

Salary: $3500
Rent: $900
Car: $400
Food $600
Petrol $400

So that’s a $1,200 leftover from what you’re making after deducting expenses. You’ll see that with such limited amount in your hand, there has to be a careful selection as to what gets paid first. Obviously, getting out of credit card debt is of the highest priority especially if you can only managed to pay minimum payment (credit card 1 & 2).

You’ll want to renegotiate your personal and car loan deal to stretch over a longer period of time with lower repayment every month to keep up. Assuming, after three months, you have successfully eliminate all the debts in credit card 2, while continue to pay minimum payment on card 1 and barely getting by with the rest of the debt. Here’s two things you need to do. Firstly, don’t start spending on card 2 again, thinking that it’s safe to do so now. Secondly, continue with paying $1,200 towards the next highest interest debt – card 1. Do not reduce the payback amount thinking that you have one less item to pay for. Don’t ever get too comfortable, give yourself a reward, or throw a celebration whatsoever – crawling out of debt takes patience and endurance

Even when you are done paying credit card 1 and 3, continue to pay $1,200 each month towards personal loan and your car loan to be debt-free in the fastest time. Since you are are used to living without the money, you’ll barely miss it. Surely, after you’ve paid your debts, continue to dump in money to accumulate some savings so you’ll never have to be in debt again.

It doesn’t always take a debt consolidation plan to repay debts, provided you have the courage and determination to do so. This plan will work for anyone with overwhelming amount of debt as long as new debts are not accumulated.

By: Steff X

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How does debt consolidation work?

Debt consolidation is a simple process that involves combining all non-secured debts, such as credit cards, medical bills and insurance, and tuition bills, into one monthly payment, which is substantially-lower than the combined payments a debtor is currently making.

Debt consolidation works by allowing the consumer (the debtor) to pay a fixed amount to the consolidation company; and in turn, the consolidation company gives them the authorization to make payments to the individual creditors on your behalf. For its part, the consolidation company negotiates lower interest rates; or sometimes, an interest rate of zero.

Creditors are usually willing to make such arrangements because they are more likely to receive payments on time from a debt relief organization than from an over-burdened consumer.

In what ways does debt consolidation help?

Debt consolidation helps a debtor in various ways, the basic ones being:

*Consolidate on monthly payments

*Management of debt

*Helps avoid future debt

*Get collection agencies off your back

Is it preferred over bankruptcy?

Yes, it is. Debt consolidation is an important step, which helps debtors avoid the much more serious step of declaring bankruptcy. In bankruptcy, your debts are canceled and your credit rating collapses completely; whereas debt consolidation is a much stable option, which gives you a better credit profile.

What are the various means of debt consolidation?

You have a few options when considering debt consolidation. You could hire a credit counselor to help negotiate a settlement with your creditors–often at a discount to the total amount due–or you can get a debt consolidation loan.

With a debt counseling company, you have the advantage of paying one bill each month for all your accounts. Debt relief organizations form relationships with thousands of creditors, giving them enough bargaining power to push creditors to forgive debt they normally would not.

With a debt consolidation loan, you will consolidate all of your unsecured debt into one single payment at a reduced interest rate. They will assist you in saving as much money as possible and will reduce your concerns and hassles.

By: Erick O Johnson

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Debt consolidation versus debt negotiation are two options that are available to you if you need debt assistance. When your monthly bills become too much for you to handle, it makes sense to use debt consolidation or debt negotiation for solving debt and credit problems.

Debt Consolidation

Debt consolidation services have prearranged debt repayment plans with most credit card and collection companies. When you sign up with a debt consolidation company you are offered a lower overall monthly payment based on a lower interest rate they have arranged with the creditor.

This payment is lower than what the credit card companies offer you, saves you money every month and is often the best way to consolidate debt.

One benefit of a debt consolidation repayment plan is it will stop you from getting harassed by your creditors as long as you make the new, lower monthly payments.

The downside of the debt consolidation repayment plan is that you have to cancel all credit cards that you include in the plan. You are also charged your first payment you make toward the program and an additional monthly administration fee. This administration fee ranges from flat fees of $10-$50, while others charge a $5 fee for each creditor. That means you’ll pay about $30 a month that doesn’t go to paying off your debts.

The debt consolidation program benefits you if you have high interest rates or have higher credit card bills than you can manage. Some people like to make only one payment to one company for all of their debts.

Debt Negotiation

Debt negotiation is sometimes referred to as debt settlement. This is most often offered to people who can’t handle a debt consolidation program. If you can’t make the minimum payments of a debt consolidation repayment plan or haven’t made payments in the past 3 months, a debt negotiation program is the next step for solving debt and credit problems.

One benefit of a debt negotiation program is you stop making payments to your creditors. The debt negotiation company either takes monthly payments from you and keeps it in an account, or lets you keep the money in your own account.

While you are making these monthly payments to the debt negotiation company, they negotiate with your creditors for a lower payoff of around 40-50% of your total amount of debt. Once the negotiated settlement is agreed upon with your creditors, the debt negotiation company makes a one time payment to them.

A downside of the debt negotiation program is it lowers your credit score for as long as you are in the program. However, most debt negotiation companies require the creditor make the credit report show paid in full so it doesn’t show up as a negative on your report once your account is settled.

Some debt negotiation companies include a credit repair service that will remove the negative items caused by the debt negotiation program. You pay for this service as part of their program.

Now that you have an idea what debt consolidation versus debt negotiation is choose which one will work best for solving debt and credit problems for you.

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