Understanding Debt Consolidation

Believe it or not, Americans have a Constitutional right to go bankrupt. https://babysoup9.wordpress.com/2018/03/31/understanding-debt-consolidation/ Bankruptcy is a legal proceeding. There are programs out there that are outright frauds and a few that are not dishonest but not exactly advantageous to the customer.The last approach is something called debt consolidation. Ironically, many debt settlement, debt management plans, and debt negotiation companies will call their programs "debt consolidation." That is not inaccurate, but it's a bit misleading.Debt consolidation simply means lumping all your debts together. In one way, that is what all debt plans do at first, whether it's bankruptcy, a DMP, or some other program.But pure debt consolidation involves lumping your debts together and then taking out one big loan to pay them off.Why would anyone do that?If you have a lot of high-interest loans, you may be able to take out lower-interest loans to pay them off. For instance, if you owe $10,000 at 22% on a credit card and you can borrow $10,000 at 10% from your bank, you would be smart to borrow $10,000 at 10% and pay off the credit card. You still owe $10,000, but you owe it at less than half the interest rate. If you keep making the same payments, you'll pay the debt off much sooner.If you own a house and can refinance it or get a home equity loan or second mortgage, you can use that to consolidate your debt. Let's say all of your debts together came to $100,000 and you owed them at varying interest rates from 22% down to 10%. If you own a house and take out a second mortgage (or use another refinancing option), you can borrow $100,000 and pay off all of your debt. You can structure this second mortgage as a 30-year loan and probably get it at 7% or even lower. The result is a significantly lowered monthly payment and a boatload of individual loans you can stamp "paid in full".

Debt consolidation offers a lot of advantages. (That's why so many programs like to call themselves debt consolidation!)It is the only debt solution that can actually help your credit score (your credit score goes up whenever you pay off loans in full). If you are willing to take the time to learn a few things, you can do it yourself (no fees or other people to pay). It's not intrusive; in fact, if done properly, no one would ever guess you did it. Even if your bank or a lender figured it out-they would probably think you're smart to handle your debt that way.If you can figure out how to do a pure debt consolidation on your own, you don't need to bother with hiring a company (or a lawyer), entering financial rehab, or paying off agents to "manage" your money.In the interest of fair disclosure, however, it must be stated that debt consolidation in its pure form will not work for everyone. Some people will not qualify for it. There are others who might indeed qualify for debt consolidation, but will find another plan is more to their advantage.