Frequently Asked Questions on Debt Consolidation

1. How can you consolidate debts?

You can consolidate your debts on your own with a debt consolidation loan, or you can sign up with a debt management company that offers debt consolidation services.

2. What is a debt consolidation loan?

A debt consolidation loan is a low-interest loan that you can use to pay off your existing debts. It can be a secured loan or an unsecured loan.

3. What is a secured consolidation loan?

A secured consolidation loan is borrowed against some collateral such as a house, car, jewelry, or any other asset. The collateral secures the loan and if the borrower fails to repay the loan, the lender seizes the collateral and sells it off to recover the money.

4. What is unsecured debt consolidation loan?

An unsecured consolidation loan is a loan that does not require any collateral.

5. Which is preferable as a consolidation loan- a secured loan or an unsecured loan?

Usually, the collateral lowers the interest on the secured loans. Lower interest reduces your monthly payments and helps you pay off the loan within your monthly budget. So, secured loans are preferable as debt consolidation loans. However, secured loans come with a condition too. If you’re unable to pay the loan, the creditor may take possession of the asset or property placed as collateral.

6. Is Home Equity Line of Credit worth considering as a debt consolidation loan?

Yes it is. If you have enough equity in your house, then you can consider a Home Equity Line of Credit to consolidate your present debts. The more equity you have, the less interest on the loan and more you are able to borrow. Lower interest will reduce your monthly payments and help you pay off the loan easily.

7. Do I need to be a homeowner to consolidate my debts?

No, it is not a necessity. You can take out an unsecured consolidation loan if you do not own any property, or if you do not wish to borrow against one of your assets. An unsecured consolidation loan often comes with a higher interest rate than a secured loan. Therefore, before deciding upon an unsecured loan you would need to know the details of the payment plans.

8. Is a debt consolidation loan different than a debt consolidation mortgage?

Yes. A debt consolidation mortgage allows you to take out a new mortgage to pay off your unsecured debts and other mortgages. By doing so, you are left with just a single mortgage payment that you need to make every month. With a debt consolidation loan (secured or unsecured), you can pay off your secured and unsecured debts.

9. Do debt consolidation services charge fees?

Yes. Normally, in most debt consolidation programs you are required to pay some fees. The fee structure usually varies from one company to another.

10. How can debt consolidation simplify my monthly payments?

Debt consolidation is an easy way to simply your obligations. With debt consolidation, your several debts get replaced with a single debt. Usually the new debt carries a low fixed interest rate (lower than the combined interest on the debts before consolidation) and you can pay it off over a longer period of time. Low interest reduces your monthly payable amount; and since you pay the debt over a longer period, your payable amount gets lowered further. Thus, your multiple obligations with different principals and interests get simplified into a single fixed payment.

11. Can I get rid of all creditor harassment calls?

When you enroll in a debt consolidation program, the company appoints an attorney, who contacts your creditors and notifies them to stop all communication with you. A legal notice is sent that normally puts an end to all annoying calls within one to two months of your enrollment.

12. Will debt consolidation be of any help if I have late payments?

Yes, with a debt consolidation program, you can pay off any late payments or missed payments. It helps you pay off the debt easily and stay updated with your payments.

13. What impact will a debt consolidation plan have on my credit rating?

Debt consolidation does not harm your credit rating in any significant way because it helps you pay off your entire principal amount. When you take out a consolidation loan or enroll with a company to consolidate your debts, your score temporarily drops. But as you start paying off your debts, your score increases and makes way for a good credit report.

14. Can I choose the debts that I want to include in a debt consolidation program?

Yes, you may choose the debts, which you want to consolidate through a debt consolidation program. You can consolidate all your debts (both secured and unsecured debts), or you may prefer to leave out one or two.

15. How long will I take to pay off my debts through a debt consolidation?

Duration of your debt settlementt program will depend upon the following factors: The outstanding debt amount Kind of debts The amount that you can afford every month. If you have a huge outstanding debt amount, then you might take longer to pay them off. On the other hand, if you can afford to pay more every month, then you are expected to complete the consolidation program faster. The average duration of a consolidation program is approximately around 4 years. Depending on the company the average length can range from 2 to 4 years.

16. How much can I save by consolidation?

Depending on the method you use, debt consolidation helps you to save primarily on the interest. As you consolidate your multiple debts and pay them with a single low interest loan, you save a considerable sum of money on the interest.

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