subject: Consolidate Debt [print this page] The consumer who starts to investigate ways to consolidate debt is treading in popular yet dangerous waters. The temptation to roll all debts into one manageable monthly amount makes sense in theory, but there's also the temptation to take out a loan in order to do it. The statistics for the success rate of those loans are very grim. About 70% of consumers who take out loans to consolidate debt wind up with the same debt two years later and in many cases the debt has increased.
There's a good reason for this. While managing to consolidate debt into a monthly sum that is more affordable than paying many bills per month, the time it takes to get out of debt is long term. That's the hard facts of it. Yes, the interest rate is lower and yes, the monthly payment is lower, but there's a reason. The consumer will be paying off the debt for years, and in the end, the amount of interest paid is a whopping amount. The worst scenario is when the consumer takes out a debt consolidation loan, and secures it with a second mortgage or home equity loan. If for any reason there are habitual late payments or even default, the property can be seized, and then the consumer not only faces a debt that is still unpaid, but can face monumental personal difficulties.
To consolidate debt more successfully, the consumer can look at debt management and debt settlement options. They are similar methods yet different to consolidation methods, and do depend on the circumstances of the consumer. What both methods have in common is that the total debt amounts are renegotiated. Working through a debt relief company, professional negotiators work with creditors and get the amount owed reduced to as much as 50%. When combined with much lower interest rates on the remaining balance, this enables the consumer to not only have a much lower monthly consolidated payment, but to become debt free in a matter of one to three years. These programs do reflect on a credit report but because the debts are paid off more quickly, it means that the consumer can begin to rebuild credit much sooner than with consolidation loans. There are positives and negatives to consolidate debt, and the consumer must look at their individual circumstances very closely. Having a professional assist in the assessment is also a very helpful thing too. Getting out of debt is hard, but shouldn't be made even more difficult by choosing the wrong path.
by: Vicki Hall
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