What exactly is Debt consolidation?

Debt consolidation is a type of financial service that gives you many advantages just when you need them most. For starters, Debt Consolidation programs can help you reduce the interest charges on your loans, lower your monthly bill payments, and give you just one easy bill to pay for all your debts. Very often, by making these regular monthly payments, you’ll find that you can restore your good credit rating in a fairly short timeframe.

How do I know if I’m a good candidate for Debt Reduction?

It’s pretty simple. If you’re having trouble paying your credit card bills, your car payment, your utilities, even your rent or mortgage, you’re probably a good candidate. And missing monthly bills is a sure sign that you’re on the road to either defaulting on a loan or possibly even filing bankruptcy. This is a good time to head off trouble before it starts and you get in too deep.

Are Debt Reduction Loans structured in months, like other loans?

Yes, and they typically last somewhere between 5 and 30 years.

I’ve heard that debt reduction loans look bad on my credit report?

This is false. In fact, a debt reduction loan could actually help your credit. For example, if you are just getting by, making minimum payments on your bills and loans, or maybe you’ve even defaulted on a loan. Those are the types of activities that negatively affect your credit rating. And your credit score will reflect this. On the other hand, if you secure a debt reduction loan and are able to make the more affordable payments on time every month, the credit bureaus will see that you are responsibly using the credit that’s been extended to you. That kind of activity will improve your credit score.

Is it better to consolidate my debt or just get a loan to pay them off?

Most debt consolidation loans from your local bank will use your home as collateral against your loan. And these types of loans can only be used IF you have enough equity in your home. Many times, people with a lot of debt are either renters, or don’t quite have the equity in their homes to support a loan.

Besides, trying to get out of debt by taking on even more debt can land you in even more trouble.

The upside of these types of loans is that they are partially tax deductible. NOTE: interest is not tax deductible if your mortgage exceeds the value of your house or if you’re using a loan to pay off credit cards or personal loans (unsecured consumer debt).

Will creditors really lower my interest rate and payments?

They just might be willing to do this. They way they look at it, if you file for bankruptcy, they may not get anything out of the deal. So form their perspective, they’d like to get some of their money rather than nothing at all. So, when a debt consolidation company calls creditors, they are usually a lot more receptive to lowering your interest rates than you might think.

Maybe I should take out a home equity loan?

You could. Basically it would serve the same purpose as a debt reduction loan, but with a Home Equity Loan you’d be using the value of your home as collateral for your credit. This can be a risky proposition.

A debt reduction is just one option, are there others?

Certainly. You can always go to financial management classes, debt counseling, and other types of classes. But what you’ll get is really just advice or maybe a plan on how to reduce your debts. You don’t really get help with the repaying your debts.