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Debt Consolidation Loans vs. Debt Consolidation PlansSome consolidation companies offer "consolidation loans" that people use to combine all existing consumer debts or credit card debts into a single loan and one monthly payment. These loans are often secured by some form of collateral, usually the family home.A debt consolidation loan also may be secured by a co-signer who will be liable for the debt should the primary signer default. Unsecured loans for bill consolidation also exist but the high interest associated with them may be even greater than your current credit card interest rates. A debt consolidation loan allows borrowers to make payments to a single creditor rather than to many creditors who compete for loan repayment. Debt simplification is appealing to many people whose personal finances have become complicated and unmanageable, but true debt reduction is usually NOT a benefit of such a consolidation loan. Consolidation loans, if used to consolidate bills, transform unsecured debt, which is not backed by any collateral, into secured debt, which is. Since most people use the family home as collateral, they place the home at risk should they become unable to meet the conditions of the consolidation loan agreement. If for any reason, you fall behind on monthly payments or become unable to make payments at all, the collateral asset may be taken by the lender. The interest rates associated with debt consolidation loans also are often in the 20 and 25 percent range, comparable to high-interest credit card rates, and therefore yield no advantage in reducing monthly payments or total interest payments. The length of time to repayment and total interest usually increase under such a loan arrangement often taking 10 or 15 years or get out of debt. Additionally, after finding themselves in dire financial straits, many people have implemented a debt consolidation loan only to run up further credit card debts and eventually completely founder, being led into bankruptcy and losing everything. Debt Consolidation PlansA consolidated debt plan is much different. If you qualify for such a plan, you may restructure your debt with existing creditors without transforming unsecured debt into secured debt. In fact, secured debt such as a typical mortgage or automobile loan is generally NOT included in a debt plan. Unsecured debts, usually credit cards, student loans, bank lines of credit, medical bills, department store credit cards and collection agency accounts, are more typically the kinds of obligations considered for a consolidated debt plan.Under a consolidation plan, loans are NOT made and all existing creditors remain the same. However, interest payments due creditors are re-negotiated, lowered or completely eliminated to allow more principal to be paid each month. In fact, debtors may cut their monthly interest costs by as much as half what it had been before the implementation of the consolidation plan. This is the primary reason why someone pursuing quick debt reduction is able to get out of debt in only 3 to 5 years on average and much preferable to the 10 or 15 years a consolidation loan would have taken. A debt consolidation plan will allow you to manage your finances without any additional loans and without declaring bankruptcy! If you are having trouble meeting the minimum monthly payments on your debts or you feel you are slipping further behind each month, let us go to work for you!
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THE FAIR DEBT COLLECTION PRACTICES ACT
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