What Is Debt Consolidation?
Debt consolidation means taking out one loan to pay off many others that secures a lower interest rate and a fixed interest rate or for ease of servicing one loan only. Generally, it involves a secured loan against an asset that serves as collateral most probably a house. In such case a mortgage is secured against the house. Since, by collateralizing the asset owner agrees to allow the forced sale of the asset to pay back the loan. All this involves minor chances of risk to the lender so the interest rate offered is lower. Sometimes a heavy discount is provided by the debt consolidation companies on the amount of the loan. The decision to consolidate must be taken carefully as consolidation affects the ability of the debtor to discharge debts in bankruptcy. As compared to an unsecured loan from a bank a debt payment by credit card is more beneficial as credit cards carry much large interest rate. Debtors those having property whether it may be a car or home get a lower rate through a secured loan by using their property as collateral. As a result of this the total interest and the cash flow paid towards the debt is lower which ensures the debt to be paid off sooner incurring less interest. Companies that are engaged in these debt relief programs are well-versed in dealing with various types of creditors, like mortgage companies, banks, credit card companies etc.

They are the great rescuer as they interact with creditors to reduce the amount of money you owe to them and can even convince creditors to cut back on the interest rate on your previous borrowings, thereby assisting you in finding your way out of this debt-ridden situation.

When you are trying to get out of credit card debt, sometimes desperate times call for desperate measures. There is a progression of alternatives most people go through in trying to find ways to drive that credit card debt problem down and get it under control. At first just trying to pay them off month to month seems reasonable. But as the debts mount up, more creative measures are often tried.

It is when you take that next step of leveraging debt against debt that you know things are getting out of control. This is when you start paying off one credit card with another. Now there are reasons to do this such as moving debt from a high interest account to another that is doing business more favorably for you. But you have to watch those deals because often there are transfer fees or other hidden charges to sneak up on you. And if the lower rate is a limited time offer, the advantage of the lower interest rate for a few months may not be worth the extra fees. And if that new credit card carrier then jacks your fees up higher than they were on the old creditor, you are worse off than before.

When the credit card debt then begins to become a real problem the next level starts to take advantage of your assets. You can take out a second mortgage and get a pretty good rate that is controlled because that is what they called a secured loan which means you are using the equity of your house as collateral to fight the credit card debt. But these kinds of loans are risky because if you did default on them, you could lose your home.

When the credit card debt begins to get serious again, even despite all these serious measures you have taken, you can get pretty panicky. And you can get resentful because there is no question that the credit card companies seem to do all they can to keep you trapped in this debt as long as they can. And why shouldnt they after all? They make a lot of money off of your credit card debt. And they dont have to do anything to keep it rolling in.

This is why when it comes to making a decision between just starting to default on the credit card debt, it might be time to pull out the stops and go after the credit card companies to put a stop to the escalating bill. But you can put a stop to it by calling them directly and not being afraid to play the ultimate card, the B card bankruptcy.

Now, declaring bankruptcy has become more difficult since the current administration in charge of our government made it harder for regular folks like you and I to use this tool to stop the constant escalation of our credit debt. But it still is possible to use bankruptcy and if you do, the credit card companies could lose all of that money. And they know it too. Now you dont want to threaten bankruptcy unless it really is a possibility for you. But if it is and you call the credit card companies and let them know this is your next step, you suddenly have all kinds of leverage with them.

Once the credit card companies know you are serous about going that route, if you tell them you would like to work out a deal to pay off some of the debt you owe, they may be very open to reducing your debt by half or more. And if you can get that kind of deal from every credit card company you owe and you can get them to lower your interest rate to make your ability to pay more reasonable, you might be able to avoid the bankruptcy entirely. And if that is the outcome, you did a good job of showing the B card but never having to play it.

Lifting the Veil on Debt Consolidation UK

You’re sitting there one day, off from work due to the stress of your unsecured debts weighing heavily upon your shoulders. Suddenly, in the background noise from the TV you hear a fantastic deal – consolidate your existing debts into ‘one easy affordable loan’. You think wow, just what I need to get my debts under control and you get the sales blurb.

Sounds great doesn’t it?

Debt consolidation in the UK is not a new phenomena these days. It’s been around a while. Lots of people have taken out debt busting consolidation loans. So why is the amount of debt in the UK still rising so fast? And why are bankruptcies, IVA’s and debt counselling services stretched to their limits and running at all time high figures right now? Well people get sold on the advantages but I’d recommend thinking about the disadvantages too!

Advantages of debt consolidation UK

Well the interest rate normally comes down on the unsecured debt amount borrowed making the monthly payments easier to afford.

Your debts come under control quickly so the annoying telephone calls and letters from irate creditors stops.

Disadvantages of debt consolidation UK (this is the bit they don’t want you to think too hard about)

To get a debt consolidation loan usually requires some form of property. By consolidating the unsecured debts to your home some of the equity has now been lost. So what was once an unsecured debt now forms part of a charge over your property. Every legal advert in the UK selling this type of service will point out in the small print that your home is at risk if you fail to keep up payments on (this now larger) secured loan. So you’ve put more risk onto your property. I regularly meet people who have bought their house maybe 20 years ago for figures like 80,000 on a house worth 110,000 to find that a decade on they have a house worth (say) 180,000 with a new debt consolidated mortgage of 150,000. So they still only have a similar amount of equity in the property but also have a mortgage now nearly double in size!

Another disadvantage is that the term of the borrowing is usually increased. Well sometimes the debt consolidation companies in the UK will sell that as a benefit with a line like ‘you can take longer to pay your debt and allow yourself time to get on top of your borrowing over the coming years’. I find that an odd statement. You have doubled your mortgage in a decade and you have found yourself in debt but suddenly your spending habits will change and you’ll be debt free at some point in the future. What are your thoughts as you read that? Another interesting point arises here. Because the term is often longer, you will possibly end up paying much more of your hard earned money for that unsecured borrowing by the time you pay off your new secured lending.

Did the debt consolidation company ask what your lifetime ambitions are? You see, you may have got out of the immediate debt issues but you may just also have signed away the possibility of that early retirement / new car / that holiday to see your family down under too. You see, if the amount you are paying back is higher than you had budgeted for then you may need to work longer to achieve your dreams. Was this discussed with you?

Did you consider at least 6 solutions for getting our of debt trouble before you decided on your debt consolidation loan? Can the company you speak to even name 6 solutions for getting out of debt trouble? If not then you have ignored several other options that may have been more suitable for the financial position you found yourself in. It’s rare indeed to find loan and mortgage brokers that are fully trained in solutions to tackle insolvency and debt issues. They have their offering and will talk about the monthly repayment figures to demonstrate how you could be better off, but is it the best way forward? Well naturally, that depends on your situation.

A final word on debt consolidation in the UK

Now, I do believe that debt consolidation has its place but I also think that there could be more done to understand that there are other options for getting out of debt. Getting the right debt help and advice is essential. Look at the advantages and the disadvantages for each solution you consider for debt resolution and then make a more informed decision.

There are more options for getting out of debt trouble then most people realise, that includes debt consolidation but is not limited to just that course of action.

If you would like to know what the 6 solutions to debt in the UK are then you can get debt help and advice from Ed Pearson at Debt Dr.

This article does not constitute regulated advice. Please remember that any action regarding financial advice should always be taken only after considering the specifics of your own situation.

To find out more about Ed try, http://www.advice4debt.co.uk/debtquiz.htm

Ed Pearson is a Debt Dr offering debt help and advice to individuals and small businesses across the UK.

Whilst you may love the stuff he writes, you should only ever take action once you have considered your own set of financial circumstances with a professional. This article does not constitute financial advice.

Debt Consolidation Loans And How They Can Help You

Debt Consolidation Loans

Debt Consolidation Loans combine multiple debts into a single, manageable loan . Shakespearefinance has tie-ups with a range of highly experienced, competent lenders, who work towards providing competitive rates on debt consolidation loans to both homeowners and tenants. Debt consolidation loans are secured against your property and can provide lenders with a greater capacity to lend.

Debt consolidation loans are secured loans. A secured loan is one in which the borrower uses something that he owns as collateral for a loan. Debt consolidation loans make it so that you only have one smaller monthly debt payment. This can free up money to make your ability to enjoy life as you pay off your debt much more possible. Debt consolidation loans are offered to the debtors in two ways. If you don’t wish to pledge collateral as well as want to obtain a debt consolidation loan, then the best way for you is to opt for unsecured debt consolidation loan.

Mortgage offers contain many terms less than 30 years and some are as few as 10 years. Refinance mortgage rates can make a big difference in your lifestyle and your finances for years to come. Mortgage rates are going lower while credit card rates are still going up. Also, some credit card issuers are being switched from fixed rates to variable.

Loan companies usually sell debt consolidation loans as a way of consolidating your bills into one, lower, easy to manage, easy to afford payment. By consolidating your debts into one loan you may be able to obtain a much lower monthly payment, this could make life more affordable or free up money for another purchase.

Loans subject to status and where mortgages are involved, subject also to type and value of property. The actual rate available will depend upon your circumstances. Loaning money to consumers is how the banks make most of their money. The banks charge interest that has to be paid back along with the initially borrowed principal.

Loans for individuals with bad credit are called “bad credit loans” and they are available to finance a number of items. Bad credit loans can be used to purchase cars, or even debt consolidation and personal loans. Loan not in favor of property is recognized as secure. It gets you lesser interest rates, higher loan amount, easier installments and longer time period for repayment. Loans can add burden to our lives if not properly managed. That is why we consider debt consolidation loans as the best choice that can help us reduce the burden with out debts

Getting debt relief is sometimes too complicated. Even after consolidating your debt through a debt consolidation agency you may end up with monthly payments too difficult to afford that wont leave space for unexpected expenses. However, by combining Debt Consolidation with Mortgage Refinancing you can achieve debt relief to an unbelievable extent.

The usual means for reducing debt exposure is contacting a consolidation agency or negotiating debt yourself. Debt consolidation implies contacting lenders and agreeing with them new repayment programs with lower monthly payments. This result can be achieved either by reducing the amount of money charged on interests or by extending the repayment schedules.

Debt Consolidation

The procedure is simple enough: Either you or the agent assigned to your case by the consolidation agency contacts each of your creditors and tries to convince them of the advantages they will get if they agree to lower your monthly payments. Sometimes in order to obtain their money sooner the lenders agree to a cut on the overall debt including capital and interests. In many casesdebt consolidation agencies have obtained up to a 65% reduction of the debtors outstanding loans and credit card balances.

Once the negotiation process is completed; your debt expenses will be greatly reduced. However, sometimes the procedure is not enough and you may not be able to afford the monthly payments. At this stage, some debt consolidation agencies offer a debt consolidation loan with a longer repayment program. You just pay this single monthly installment to them and they take care of your loan payments and bills.

The problem is that in certain situations there is too much debt that is non-negotiable. Typically, federal student loans and some private student loan programs, home loans, home equity loans and any other form of secured loan is too hard to negotiate because the lender is comfortable knowing that he can legally claim your property in case you fail to repay the loan.

Refinancing

One would think that refinancing would only solve the problem with your home loan, but truth is that by taking advantage of cash out refinance loans you can request a higher loan amount than the amount of your current mortgages remaining debt and use that extra money to cancel other non-negotiable debt.

This procedure will not reduce your debt but will reduce your income/spending ratio because by refinancing youll be able to spread your debt into a longer repayment program reducing the amount of your monthly payments. Since by applying for a cash-out refinance loan youll get actual cash, you can use it for prepaying outstanding debt, but be careful to repay those loans that dont have prepayment penalties first; that way youll save even more money.

The only difficulty that this method presents is that you need to have enough equity on your home in order to obtain a cash-out refinance loan. If a home equity loan is part of the debt you need to repay, chances are that you wont be able to use this system. However, there are some lenders offering up to 135% financing at slightly higher rates. If there is no other choice, you can resort to them.