Debt Consolidation Advice

A debt consolidation loan is taken to help someone facing financial difficulty to repay existing loans. If a debtor has too many loans and outstanding credit card dues, he or she may go bankrupt.Because bankruptcy is reflected on the debtor's credit history for ten years, it makes him ineligible for any fresh loans or credit, and may cause myriad financial problems.

Generally, loans such as credit card loans are unsecured loans and attract high interest rates.Through a secured debt consolidation loan, debtors can convert all such debts in to a single payment of low interest.Debtors can seek professional advice from reputed credit counseling organizations before choosing the right consolidation program.

These organizations have a panel of credit counselors who are experts in consumer credit and debt management. Credit counselors evaluate the financial situation of a debtor and accordingly suggest a suitable debt consolidation program. Generally, a genuine organization charges a fixed fee per month for every debt account.

As the rate of interest on a debt consolidation loan is low, the amount of monthly installment is also relatively less. Many financial institutions also offer tax benefits on the interest paid on a debt consolidation loan. However, the loan period of a debt consolidation loan is generally long. As a result, the debtor ends up paying much more than he actually owes.

Generally, debt consolidation loans are secured against the debtor's property. In the event of failure to repay the consolidation loan amount, the property can be confiscated. Hence, a debtor must carefully weigh the pros and cons associated with debt consolidation loan.

As a part of debt consolidation program, the debtor can choose from a variety of consolidation loan options. Homeowners have the choice of obtaining secured loans by using their house as collateral. If the debtor's house has been already mortgaged, he or she can obtain a home equity loan to consolidate the debt.

Home equity can be calculated by subtracting the amount of the mortgage balance from the current market value of the house. Debtors can also obtain a personal debt consolidation loan, which is unsecured. However, this loan also comes with high interest rates.

Some non-profit organizations also offer free debt consolidation advice. Various lending institutions and financial companies generally fund these organizations.