Paying off debt | Pay off debt

Welcome Guest


Debt consolidation entails taking out one loan to pay off many other loans. This is often done to secure a lower interest rate, a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral like a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Debt consolidation companies sometimes can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.

Because of the advantage that debt consolidation offers a consumer that has high debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.

Latest Articles

1: Direct Lender and Benefits like Loans for Bad Credit with No Guarantor and No Fees
You perhaps do not know much about the new concepts arrived at the UK marketplace. Thus, this article makes you familiar with them, especially on the loans for bad credit people with no guarantor an..

2: Why Is Wealth Management Important?
No matter what age you are, Wealth Management is extremely important. Although most people don’t bother to learn about wealth management until later in their life, it is a vital skill tha..

3: Be Wise - Strive For Total Wealth
Most people are primarily concerned with their material well being, so they focus on striving for material wealth. But there are actually three kinds of wealth - physical, material and spiritual wea..

4: How to minimize your taxes on wealth
Taxes on wealth or simply wealth tax is the tax levied on the value of wealth owned by a person. As the term ‘wealth’ carries with it a broader meaning, generally capital transfer taxes ..

5: How To Get A Mortgage You'll Be Happy With.
These days, many people have poor credit. With the explosion of cheap and easy credit, more people have been landed with a poor credit rating. This has led to the phenomenon of the sub-prime mortgag..