What Is A Debt Consolidation Loan? What Are Its Benefits?

An easy way to define debt consolidation is, availing another new loan to pay off existing liabilities and debts. Under normal circumstances, the unsecured debts are paid off through such loans. An individual can have multiple numbers of debts to pay.

Debt consolidation tends to combine all small debts into one larger piece of debt. This favors the debtor with an easy payoff facility. A favorable payoff can include both the conditions of:

  • Having a lower interest rate and
  • A lower monthly payment
  • Or can be both

Bringing everything under one roof or debt consolidation can be in several ways. For instance,

  • Consolidating all the existing payments of credit cards under one new card. This is helpful especially if the new card charges very little interest or none at all. An existing credit card’s transfer of balance can also be put into good use especially if there is a special promotional offer.
  • The second way is that of home equity loans. The interest for this loan is deductible by taxpayers.

So, to put it in perspective, debt consolidation loans are specific instruments that are offered by the creditors as very much a solution and plan. The plan that helps the debtor to pay off  his or her outstanding credits.

Now, why would a creditor seek money for a borrower by offering debt consolidation loan? That’s because this very much enhances the chances of collection. Consolidation loans are generally on offer from various financial institutes like banks and specialized debt consolidation companies and even credit unions.

Now to focus on the types of debt consolidation loans in the market. There are 2 types:

  • The first is a secured loan. These loans have the backing of an asset belonging to the borrower. The asset can be that of a car to a house. This very asset acts as collateral for the loan.
  • Second type of debt consolidation loan is an unsecured loan. This loan does not have the backing of an asset and is difficult to obtain. The loans usually have higher interest rates along with low qualifying amounts.

The marked similarity between the two above stated loan types are; both have interest rates lower than what is charged on credit cards. And to add, the interest rates do not fluctuate over the repayment time. The rates stay uniform.

So how long does it take to pay off a debt consolidation loan? Experts of credit counseling service companies put it anywhere between three to five years.

It must be kept in mind as a reader of this peace, debt consolidation loans do not erase the original debt. They happen to transfer all the existing loans of a borrower to a different lender or type of loan. If an individual is seeking total relief from debt, it is advisable to go with debt settlement. A debt consolidation loan does not reduce the number of obligations for a borrower to pay back.

Loans of this type are most beneficial to people with multiple debts and are regularly getting calls or letters from creditors.

How Debt Consolidation Appears Beneficial For The People And Companies

When it appears grossly impossible to pay off the debts over the period, it will be better for the people to get in touch with the legal experts, who deal with the debt related matters over the period. The matter of consolidation of debts comes through a higher grade loan section, where a government organization pays off the money to the debtors so that they can pay of the most as possible.

This is a critical matter, because in this process, the loans are paid with the combination of the existing debts and it needs to pay off a lower amount every month. Even though debt consolidation appears as an extra burden on the shoulder, it is actually not so. In this case, people can pay off the debts at a minimum payment that may be hugely beneficial for them in terms of paying off the debts of other creditors.

There is a terminal loan process in this kind of loan where people can get up to 5000 GBP to 75000 GBP to pay off the remaining debts that loom over the head of the debtors.

  • What if a person is announced as bankrupt?

It is a matter to note that even if a person is coined or claimed bankrupt, he or she may still get the debt consolidation benefits over the period. In fact, it will be beneficial for the people, because after being declared as bankrupt, the debtors may not need to pay off the extra interests to the creditors. The same is applicable for the companies as well. However, for a larger company, the consideration of the money and the terms are absolutely different.

  • Can unsecured debts be included?

In order to pay off a new loan under the liabilities, people need to consider having debt consolidation from the government organizations. In fact, it is better to note that this service is applicable for the consumers as well. The students can consume the consolidation as the student loan debts, credit card debts and other sorts of debts over the period.

  • How debts are consolidated

In this process, the consolidation happens with a lump of debts mixed in the single payment. It happens in this way that once a person has taken a number of loans, during the time of taking consolidated debts the person can mix up all the debts and pay off altogether. In the cases of the taxpayers, these types of loans are considered as deductible from the taxpayers’ money while it will eventually limit and itemize the deductions.

The secured consolidated loans will be backed by the borrower’s property, where the car of the borrower or a house will stand as the guarantee for the consolidation debt. However, it is better to note that the borrower needs to pay off the money after a certain time. Until then, the borrower can pay off the money gradually over the period. It is better to note that the loan is needed to pay off within three to five years. On special conditions the legislation may increase the time period, within which people need to pay off the loan in full.

Everything You Need To Know About Debt Management Plan Before Opting For It

Debt management plans are designed to support people in regaining control of their finances. It is a package of debt consolidation plans. The unsecured debts—that are debts which cannot be backed by collateral are reduced through it. And, this includes credit cards and medical bills. In simple words, it is among those several ways which can take control of your debt to decrease the number of payments you make each month. It can save your money in interest fees.

Introduction to Debt Plans

Firstly, let us clarify that a debt management plan is not a loan. It is a program designed just to help you pay your debt without stressing much. The debt management companies aim to provide the ways such that it helps in the reduction of the monthly payment, interest rates and any penalty associated with an entity. They do so working with creditors on your behalf. The creditors agree on a convenient payment schedule. This schedule could have a range from 3-5 years to pay off the debt.

How is debt managed in this plan?

Together with a credit counselling organization, monthly deposits are made by those who enrol. This deposit is used to pay debts in accordance to a predetermined payment schedule that is developed by the counselor and creditors.

A monthly amount is fixed to be paid by individual each month. This payment is tailored to what the customers can afford. In a Debt Management Plan, the monthly payment is determined by the analysis of household income versus expenditure. It could also include medical expenses and similar bills.

What are the advantages of a Debt Management Plan?

  • Get credit card consolidation with a minimal effort
  • Stay more organized and disciplined with your bills and payments
  • Design a genuine monthly budget with a financial goal
  • Make regular payments to improve your credit card report and credit score over time

What are the things to know about a Debt Management Plan?

  • It is a 3-5 year program
  • Creditors reduce interest rate and eliminate penalties and support in repaying it no matter what the reason is. The program is all about discipline and commitment.
  • While you are in the program, you may be asked to stop your credit accounts. However, there are some agencies which may allow to use one.

Not to mention, there are several interesting debt-relief options you can choose from while being in the program. So, consult with the expert and get solutions to your circumstances such as debt consolidation loan, a debt settlement program or even a bankruptcy in specific cases. In case you have a query, you can solve it easily by dropping a message below.