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  1. 1. Debt consolidation is a term that is used a lot for a wide range of financial plans to help people manage overwhelming debt. But in truth, these plans can be quite different with different consequences. Pure debtconsolidation is a great solution for many people facing large debt, but they need to understand what debt consolidation is and is not.debt consolidation loans
  2. 2. If youre in debt, you may find that one of your problems right now is notso much lack of information as it is too much information! There are tonsof sites online offering all kinds of debt solutions Many of them callthemselves debt consolidation, but that term is used so loosely it soundslike it could mean almost anything Maybe you dont care aboutterminology After all, a debt plan that works is all that matters, right? Thefact is that you need to know all about these things in order to choose theright option for your situation Picking the wrong one can cost you money(the last thing you need right now), hurt your credit, and keep you stuck indebt Picking the right one can get you out of debt Lets start with the onenot on the list: bankruptcy Believe it or not, Americans have aConstitutional right to go bankrupt Bankruptcy is a legal proceeding
  3. 3. You cant declare bankruptcy in the U S without getting a lawyer andjudge involved The proceeding becomes part of public recordBankruptcy is extremely intrusive in that outsiders will now determine howyour money will be divided up to pay off debt and what you must sellBankruptcy offers an advantage many debtors really love A court has thepower to issue "bankruptcy protection " You may be allowed to write offcertain debts That means some debts just go away; you are no longerobligated to pay them
  4. 4. Furthermore, once you have "bankruptcy protection," bill collectors canno longer pursue you for those debts The problem with bankruptcy isthat it all but ruins your credit It stays on your credit report for sevenyears, and it has a way of cropping up even after that It makes it verytough to get new loans or buy a house The loans you will be able to getwill be at very high rates of interest because youve suddenly become ahigh-risk borrower Bankruptcy will turn your life upside down If you havesecured loans (like car notes or loans to buy electronic equipment), thosethings can be repossessed The court may seize or order you to sellcertain assets and take the money to pay off other debts Anotherrequirement is attending money management classes, kind of like beingforced to go to debtors rehab
  5. 5. debt consolidation loans While bankruptcy does have its place, it isdefinitely the "last resort " Debt settlement and debt negotiation meanroughly the same thing: you or somebody representing you sits down andtalks to your creditors to work out a solution The principle is that youwork out (negotiate) a way to end (settle) your debt You may be able toget the interest rate reduced or the terms of payment changed (such asgetting a couple of months off or extending the terms of the loan)Sometimes you negotiate to try to get the balance reduced As anexample, assume you owe $10,000 You would negotiate with yourcreditor to try to get him to accept less, say $5,000, and mark the debtpaid in full Why would anyone do that? The main reason a creditor willnegotiate a debt is that they suspect you are flirting with bankruptcy andthey are fearful that if you go bankrupt, they wont get anything Fromtheir viewpoint, $5,000 may be better than nothing
  6. 6. Debt settlement and negotiation plans will almost assuredly make it allbut impossible to get future loans at reasonable interest (if at all) A debtmanagement plan (DMP) is a formal plan where you hand your problemoff to a company which then negotiates your debt You make one monthlypayment to the DMP and they handle your problem While there arelegitimate DMP programs out there, these are very treacherous watersDo your homework and check with the Better Business Bureau as well asa certified credit counselor (nfcc org) and maybe your bank or creditunion There are programs out there that are outright frauds and a fewthat are not dishonest but not exactly advantageous to the customer Thelast approach is something called debt consolidation Ironically, manydebt settlement, debt management plans, and debt negotiationcompanies will call their programs "debt consolidation
  7. 7. " That is not inaccurate, but its a bit misleading Debt consolidationsimply means lumping all your debts together In one way, that is what alldebt plans do at first, whether its bankruptcy, a DMP, or some otherprogram But pure debt consolidation involves lumping your debtstogether and then taking out one big loan to pay them off Why wouldanyone do that? If you have a lot of high-interest loans, you may be ableto 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 payoff the credit card You still owe $10,000, but you owe it at less than halfthe interest rate If you keep making the same payments, youll pay thedebt off much sooner
  8. 8. If you own a house and can refinance it or get a home equity loan orsecond mortgage, you can use that to consolidate your debt Lets say allof your debts together came to $100,000 and you owed them at varyinginterest rates from 22% down to 10% If you own a house and take out asecond mortgage (or use another refinancing option), you can borrow$100,000 and pay off all of your debt You can structure this secondmortgage as a 30-year loan and probably get it at 7% or even lower Theresult is a significantly lowered monthly payment and a boatload ofindividual loans you can stamp "paid in full" Debt consolidation offers alot of advantages (Thats why so many programs like to call themselvesdebt consolidation!) It is the only debt solution that can actually help yourcredit 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 ityourself (no fees or other people to pay)
  9. 9. Its not intrusive; in fact, if done properly, no one would ever guess youdid it Even if your bank or a lender figured it outthey would probablythink youre smart to handle your debt that way If you can figure out howto do a pure debt consolidation on your own, you dont need to botherwith hiring a company (or a lawyer), entering financial rehab, or paying offagents to "manage" your money In the interest of fair disclosure,however, it must be stated that debt consolidation in its pure form will notwork for everyone Some people will not qualify for it There are otherswho might indeed qualify for debt consolidation, but will find another planis more to their advantage Its important to learn what you can to find outif debt consolidation is right for you
  10. 10. debt consolidation loans