Debt Consolidation Loans

As a consumer looking into debt management options it is important to understand the different choices for debt consolidation. There are two types of debt consolidation.

1) Debt Consolidation Loans
2) Debt Consolidation Services

The following information is meant as an introduction to these terms. For more information please fill out our form and one of our counselors will provide you with a free debt consolidation consultation.

Debt Consolidation Loans do not reduce the amount of money you owe! A debt consolidation loan is simply a loan used to pay off the debt that you have with many creditors (All of your credit card companies, for example). Hopefully this loan will be at a lower interest rate then the high interest rates on all of your other debt. But this isn’t likely. Because you may not have good credit due to all of your debt you may end up with an interest rate of 18% or higher for a typical debt consolidation loan.

IMPORTANT: Debt consolidation loans often are home equity loans. This means that you are using your home as collateral for the loan. If you default on a home equity loan it is possible for the bank to repossess your home through foreclosure. This is the reason why debt consolidation loans can possibly lead to more debt trouble.

Another problem with debt consolidation loans is that you are allowed to keep the credit cards that you pay off. These credit cards are what got you into your debt problem initially and you need to stop using them in order to get out of debt.

A debt consolidation loan should make payment ofdebts more affordable by stretching payments over a longer period of time, at a lower interest rate and for a lower monthly payment

Unlike loans, Debt Consolidation Services reduce the amount of money you owe. Click here to read more about debt consolidation services.

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