Climbing out of the trap of debt could be a real complicated process without using any proper procedure. A
Are you also one of them and swimming in the financial hot water? Do you really know any solution?
Well debt consolidation plan is the real savior which can actually bring you out of the situation. Debt consolidation helps you to pay off/clear your multiple loans at a same time.
It is done with an objective of securing a fixed interest rate or lesser interest rate. Now you might be eager to know the complete details about debt consolidation. Well, here I am going to discuss the entire details about it.
Generally, you can find there are two types of debts but each of them has different sub types included. Loans are one. Loans are offered for fixed amounts and are not reusable after paying it off. You can have several types of loans and the following are the loan types-
Personal Loan – This type of loan is offered for a specific amount of money. A personal loan is given for a declared and undeclared usage. This type of loan is processed through a bank or other authentic financial lending institute.
Secured loans are given to anyone against property or guarantor but unsecured loans are only provided to the consumers with a high credit rating.
Mortgage Loan – It is a long term loan and mortgage loans are specifically issued for purchasing personal or commercial property. As a customer, here you might negotiate to lower the monthly payment.
Educational Loan – This type of loan is particularly designed for educational purpose only. Educational loans are issued for paying educational bills, hostel fees, tuition fees and other living expenses for college or university. This type of loan is paid after completing the course successfully. In this type of loan you can ask for an additional grace period.
Now these are the typical traditional loans and the second type of debt is revolving credit. It is really important to know what revolving credit is. Unlike traditional loans, it allows you to borrow the same amount of money again after paying the loan amount.
There are mainly two types of revolving credit you can find in the market and they are:
– Credit Card
– Line of Credit
Credit Card – Yes today we all use plastic money. I am sure that you are aware of the fact that a credit card is called plastic money. Today a credit card has become the most common form of personal debt. According to the latest surveys, it is said that almost each American has more than five credit cards on average.
Line of Credit – Generally, a line of credit is issued by banks and other financial organizations. It provides a reusable source of funds and you can withdraw it by check or cash.
So now you have probably have a good idea about different forms of debts but we are not going to talk about debt but debt consolidation.
Now the question might come up… why I told you so many things about debt when the main topic is debt consolidation here.
Well, the reason is very simple; without knowing what debt is you would not be able to understand what debt consolidation is.
Today everything seems alright in your financial world and you are happy and completely free of worry but tomorrow could be the day when you might have to face a very hectic situation. No one knows about tomorrow.
There are many situations where people find themselves unable to pay off the current debt obligation. Due to the recent financial crisis, a lot of people have lost their job and for them, paying the debt is just impossible. What if you are also one of them? Have you ever thought about it?
The devaluation of many homes, properties, resulting in negative equity, is one of the most crucial reasons why most people are still unable to get rid of the burden of debt. Especially after the last housing bubble burst, most of the US homes have lost 28% of their value on an average.
One of the most practical ways to pay off the insurmountable debt is nothing but debt consolidation. Usually there are two types of debt consolidation but it comes in one of two forms- Home Equity Loan and Negotiated Debt Settlement
Home Equity Loan – This is one of the most effective debt consolidation solutions for mortgage customers. This type of debt consolidation loan allows a customer to refinance their mortgage.
Here the customer can use the equity amount that he built up as a loan guarantee. Here the consumer can use the same amount to pay off the higher interest loans and credit card loans.
With the help of this home equity loan, home owners just have to pay one single payment per month which is definitely lesser than the total combined monthly loan amount of all the outstanding loans.
Negotiated Debt Settlement – This is another type of debt consolidation loan. It includes the involvement of a third party service which is specialized in debt consolidation.
It is very obvious that you want to know about the exact services you will get. Usually the third party will contact each of the creditors personally on behalf of you.
Here the third party service will negotiate an amount and you have to pay that amount every month. The advantage of going for this sort of settlement is that the negotiated amount will be always lesser than actual loan amount.
All you have to do is pay the money to the third party and they will make the payment to each of the creditors. Just like any other financial planning, debt consolidation also requires some smart strategies to follow.
The more effective your debt consolidation strategy is, the more easily you will be able to get rid of the debt. Now it is really important to follow some effective strategies and here I am going to discuss some highly effective debt consolidation strategies with you.