Debt Consolidation Fends off Bankruptcy

Fears of bankruptcy become pervasive as you inch closer to the financial edge.  Reaching out, you grasp for something to hold you stable until you recover your strength, the debt consolidation loan.

Every loan you take out requires a monthly payment.  These eat your budget quickly.  Several small credit cards require more per month than one larger one.  But, when you get in the position of having a lot of little bills, you run out of the ability to combine them through normal means (like balance transfers).

Then creditors start calling, and you start thinking that this will all end in bankruptcy.  Do you need a debt consolidation loan?  Can you even get one?

A debt consolidation loan can help in this circumstance.  By combining all your bills into one, you qualify for a longer repayment period and a lower interest rate.  This is especially true of credit cards.  Most debt consolidation loans come in three flavors: unsecured debt consolidation loans, home equity debt consolidation loans and mortgages. Each variety has its own advantages and disadvantages.  A debt counselor or a financial planner can help you figure out what type would help you the most.

Yes, you need to talk to someone.  No, no amount of reading online will answer this. This is very general information.  So take a deep breath, schedule a baby sitter, buy movie tickets, and make a date with someone who does know.  Go to the financial planner first.  The movie is your reward for the most grueling few hours of your life.  By talking to someone, you will actually know what is going on in your life.  Now back to the overview.

Unsecured Debt Consolidation Loan

An unsecured debt consolidation loan is just a signature loan like any other.  Since it doesn't have collateral, you can't lose your house or car if you have trouble making payments.  This is mostly for people that have decent jobs, good credit and just got careless with their debt.  The bank is just repackaging their debt for them.  Since it isn't secure, you pay a higher interest rate for the privilege.  This is a good option for young people that just graduated from college with good jobs and realize that five credit card payments are too much.

Home Equity Debt Consolidation Loan

A home equity debt consolidation loan is a flexible mortgage.  You use as much as you need, but any that isn't used remains available.  This option is only open to homebuyers, but most homebuyers will qualify, in some states.  It's more expensive than a regular refinance, but more convenient.

Refinance Your Mortgage

Finally, you can refinance your mortgage and do your debt consolidation that way.  This is the cheapest option.  Since your debt consolidation loan is spread out over 30 years or so, so your mortgage payments won't change that much.    It is slightly harder to get than a home equity debt consolidation loan, but not by much.  If you have been working on your house since you bought it, and its value has increased, then you probably would benefit every month from this form of debt consolidation loan.

Working with a financial counselor will help you figure out if debt consolidation is the path for you.

Debt Consolidation: What to Look For