Debt consolidation is the process of replacing numerous loans, that are generally unsecured, with a ...

1. Debt Consolidation Programs
Debt consolidation is the process of replacing numerous loans, that are generally unsecured, with a
single loan that carries a low rate of interest. Debt consolidation service is provided by agencies that
are willing to assume the responsibility of negotiating with creditors and bringing down the
outstanding loan balance, in addition to providing a loan that carries a low interest rate. Credit card
and student loan debt consolidation are commonly sought by debt laden consumers. The latter is one
of the best consolidation programs, and is administered by the Federal Govt.
Credit Card Debt Consolidation Programs
The need for credit card debt consolidation cannot be underestimated, since defaulting on a couple
of credit card payments may result in the increase of interest payments by 30%. It sets off a chain
reaction, wherein, a person is forced to pay a higher rate of interest on all the credit cards.
Exceeding the credit limit is never recommended, since credit rating agencies may reduce the credit
score of the borrower by as much as 70 points.
Transferring Credit Card Balances: Transferring outstanding balances to another credit card is not a
practical solution but may just help the consumer bide time. This solution may work, since the
consumer may be able to obtain credit cards with 0% introductory APR (annual percentage rate).
Since, credit card balances are revolving, technically, there is no repayment period as far as the
principal is concerned. With 0 % introductory APR, the consumer has the facility of borrowing
money without having to repay the loan for a certain period of time.
Using Built Up Home Equity: Obtaining a secured loan using built-up home equity is one of the ways
of discharging loan obligations. The built-up home equity, or the difference between the market
value of the house and the remaining mortgage balance, should be positive in order to avail a
secured loan. The loan thus availed is called a home equity loan (HEL), and it obligates the borrower
to repay the borrowed sum in fixed installments, consisting of principal and interest payments over
the maturity period. Failing to discharge the loan can result in the borrower losing the house.
Availing a Home Equity line of Credit (HELOC) using built-up equity can help the borrower
discharge credit card debts.
Mortgage refinancing is another option that is available to a person who is interested in credit card
debt consolidation. Opting for cash out mortgage refinancing, that results in replacing a mortgage
with a loan that is bigger in size and has favorable repayment terms, may help.
Using built-up home equity to avail a home equity loan, a home equity line of credit or opting for
mortgage refinancing, will result in converting unsecured credit card debt to secured debt. This in
turn puts a person in danger of losing the house in case he/she is unable to discharge loan
obligations.

2. Alternatives: Borrowing from 401(k) or borrowing from life insurance may be an option for people
who are not interested in using built-up home equity for debt consolidation. Borrowing from 401(k)
does not result in any penalties. As far as insurance is concerned, if the amount of loan exceeds the
cash value of the policy, the beneficiaries will not be receive any death benefit.
Federal Student Loan Debt consolidation Programs
The government offers the facility of debt consolidation to a person who is straddled with student
loans, provided these loans have been obtained directly from the Federal Govt. or indirectly from
lenders participating in the Federal Family Education Loan (FFEL) program.
Debt consolidation is a feasible alternative to defaulting and dealing with debt collection agencies.