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Managing overwhelming debt is a more common problem than most people think. Unfortunately, people coping with large amounts of debt are often unaware of all of the options they have or, worse, think of all debt solutions (from debt settlement to debt management to bankruptcy to debt consolidation) as more or less the same thing. They’re not. Debt consolidation is a completely different approach to debt than all other methods. Debt consolidation is not right for everyone and not everyone can qualify for it. But for the right people in the right situations, debt consolidation can be by far the best method of getting out from under large amounts of debt … without hurting your credit!

Unlike bankruptcy, you do not need to get a judge involved and file legal paperwork to consolidate debt. Unlike debt management, you do not need a counselor or agent to act on your behalf. And unlike most plans of debt relief, debt consolidation done correctly will not hurt your credit score or your financial reputation.

Of course, debt consolidation is not for everyone. Financial woes have a way of being unique, and every single person or family facing mounting debts has a lot of special factors that come into play. Financial plans designed to help people cope with debt can never be considered as one-size-fits-all.

Besides that, not everyone (even those who want and need it) can qualify for debt consolidation.

Quite simply, debt consolidation is a way of rolling many debts together, taking out another loan to pay them off, and then managing the consolidated debt. In other words, you take out a big loan, use it to pay off all of your credit cards and other debts, and then pay off the big loan.

This sounds counter-intuitive. For the person already saddled with debt, the thought of adding another debt is probably terrifying! And how can adding one more colossal debt to the mixture help you?

The answer is not that you are simply getting another loan, it’s really a way of re-organizing or re-structuring your debts. For example, let’s say you have seven credit cards. You’re maxed out on three and you owe differing amounts on the other four. Altogether, you owe $82,000 on credit cards. Now let’s say that there is $22,000 in car notes and another $4,000 on a revolving plan from a furniture store and the total debt adds up to $104,000. That may sound high to some people, but it is really not all that unusual!

Now look at the interest rates on those loans. This can take some detective work, but that information should be available on your monthly statements. If it is not or you can’t find it (or figure out what they’re talking about), call the toll-free customer service number most such companies have and discuss the loan with them. You want to know the interest rate, which is the percentage of the total loan the company charges you for the privilege of borrowing its money.

You will probably discover that interest rates are all over the map. Department store credit cards are traditionally pretty high (22% is not unheard of). Other credit cards span a pretty broad range (16% to 20% is fairly normal). An in-store loan for furniture is likely high (22% is typical) but the car note might be half that (10% to 12%…again, these vary widely).

If you have debt, you are paying not just the actual amount you borrowed, you’re also paying interest. Interest is the dirty little secret of debt because it keeps accruing, day after day after day. The longer you take to pay your loan, the more interest you’ll pay. In fact, if you take long enough to pay off a high-interest loan, you can wind up paying more in interest than the loan itself!!

Think of sales tax. Here in Texas, where I live, we pay 8.25%. That seems high to me, and most of my fellow Texans will agree. But most interest rates on credit cards is double that-over 16%. Imagine paying double sales tax! That’s how interest can really add up.

Coming back to our example, you owe $104,000 at a variety of interest rates. What if you could get a loan for $104,000 at, say, 12%. Would that make sense? You now swap out your many smaller loans for one giant loan at a much lower interest rate.

But let’s look at the car note. If you’re paying 12% or less interest on that, it would not make sense to pay it off and then take out a new loan at the same or higher interest!

Can you actually find lower interest rates? A lot depends on how low you need to go, how good your credit is, and many other factors. A big plus in debt consolidation is home ownership. If you own your own home, you may be able to get a home equity loan or refinance the mortgage in such a way that you can extract money from your home to pay off your debts. A mortgage company, banker, or debt consolidation professional can help you figure out if that works.

If you do not own your own home, do not give up. Debt consolidation may still be possible using a line of credit (a type of unsecured loan obtained through a bank, credit union, or financial institution). You may also be able to borrow money using something else of value (a 401(k) account, stock account, property) as collateral. Any time you have collateral, it’s easier to get a loan and you’ll likely have more clout in getting lower interest rates. That is because collateral means lower risk to the lender. If you put up your retirement account as collateral for a loan, the lender has the right to take funds from your retirement account to pay off the loan.

It is tough to make broad statements about debt consolidation, but you are a pretty good candidate if you have an uncomfortable amount of debt and at least two of these things is true about you: (a) you own your own home, even if it’s mortgaged, (b) you have a lot of debt at interest rates around 20% or higher, (c) you have good credit.

There are some definite advantages to debt consolidation. First, because you pay off your debts, it does not hurt your credit score and may even help it. Second, debt consolidation is an ethical solution that will let you feel good about yourself because you end up paying your debts in full (some people in bankruptcy end up feeling embarrassed or ashamed). Third, it is smart money management.

However, before embarking on debt consolidation, you need to get the facts. There are lots of online and offline places to seek information and there are also companies and counselors who can advise you. One often overlooked source of information is your own hometown bank. Bankers know a great deal about borrowing money and can probably give you free advice if you call and make an appointment. (I suspect that if you go to your bank, it’s more likely that you’ll get lots of good free financial advice from a professional banker, but I have heard of people who got great and free advice from banks where they were not even customers!)

Keep your eyes open if you consolidate debt. Debt consolidation does not make debt disappear: you still have to pay it off. It also does not really help you change your financial ways; you’ll have to take steps yourself to keep from digging yourself into debt again. But for the right people, debt consolidation can be a great way to manage overwhelming debt sensibly.

Mandy Karlik is a freelance writer. To read more of what she has to say about the basics of debt consolidation, click through to http://www.debt-consolidation-diva.com

Article by Debt Buddy

Most people find themselves in difficult positions nowadays, from the financial point of view. They desperately search for ways in which they can get out of debt, but some of them have not been well informed about the appropriate measures to take.

How to get out of debt?

You can opt for several solutions that will help you get out of debt:1. The obvious first step here is to quit using your credit cards. By simply cutting the source of your problems, you will stop making new debts. It may be a painful process for some, more likely to people who have built an entire lifestyle around the use of credit cards, but it’s the most efficient way to get out of debt.2. A popular method is to move your balance from one credit card to another. Ideally you should find a credit card with a 0% interest rate, or at least a very low rate. Of course, this doesn’t erase your debts, but it will give you the time you need to get all details in order and put your plan into action.3. Choosing home equity loan to get out of debt is also a good idea. It acts like a second mortgage and it give you the opportunity of using the equity in your home as a placement of guarantee. If you don’t stick to the terms in your contract, you are in danger of losing your home, but you will also receive a low rate of interest and you don’t need good credit history to apply for it.4. Another option to get out of debt is to consolidate your debts and then start making double payments. In this way you first repay the main amount owed, and not the interest.5. In matter of debt consolidation, a secured loan grants you the chance of resolving big amounts of owed money, as you will receive a low rate of interest and a long term available for your repayments. But you need to guarantee it with your home.6. Unlike the secured loan, unsecured loans don’t need any placement of collateral, but the rate of interest is higher and the term shorter.7. A bank can also help you get out of debt. Banks compete with the home equity loan system. Therefore, they will try to make you better offers, which include lower rates of interest and longer terms.

What you need to know?

No matter what method you choose to get out of debt, keep in mind that it’s a long process and you’ll probably have loans to repay for a long time. Unfortunately, most people can’t fix their financial problems by snapping their fingers, winning the national lottery or by inheriting a large sum of money. But the above mentioned options offer you a more affordable solution. Consult a financial advisor for an in-depth view about how you can get out of debt.

By consulting a financial expert, you will know more about these mentioned methods in which you can get out of debt. Take a deep breath, arm yourself with patience and be confident your problems will be taken care of, in the end.

Related Out Of Debt Articles

How does your month starts – paying interest rate on your car, credit cards, grocery bills, medical bills and what not. It is a taxing process and chances are you can’t even make the complete payments. Debt consolidation offers the best solution available for this predicament. Debt consolidation is possible for someone with bad credit. It is usually with people with bad credit, they have numerous debts. Having bad credit is not such a huge problem but having unpaid debt is certainly something that requires more than careful consideration.

Debt consolidation loan with bad credit can reduce your debt considerably. Bad credit debt consolidation is a significant step in debt management. Bad credit debt consolidation is a very helpful option for someone in debt. But they may or may not be the right solution for consolidation of debt for a bad credit borrower. Bad credit debt consolidation has advantages and disadvantages of their own.

Bad credit debt consolidation has lower interest rate as opposed to what you were paying initially. This is what you should be concentrating on while hunting bad credit debt consolidation. The most common type of bad credit debt consolidation is home equity loans. This is also known as second mortgage. These loans are secured there is a liability is attached to it in the form of your home. Therefore, serious thought and consideration is required before securing bad credit debt consolidation with home.

Unsecured bad credit debt consolidation is also possible. That would require some perseverance on your side. Unsecured loans have no security therefore will ask for higher interest rates as compensation. Be prepared for that. Also the accountability with bad credit is in the form of higher interest rates. You must be aware of your credit score before you apply for bad credit debt consolidation. Get a recent report and try improving your credit score. Even a little bit improvement in your credit score can do wonders with respect to the interest rates you can achieve.

Since bad credit debt consolidation has lower interest rates, the monthly payment gets significantly reduced. A reduced monthly payment will leave ready cash in your budget every month. This not only saves your money but proffer a way to making other expenses possible within the same money. Sometimes bad credit borrowers pay attention only on low monthly payment rather than low interest rates. Lower monthly payments over a long period of time can cost more over a longer time span. Sometimes paying off debts can take a longer time with bad credit debt consolidation. Get a copy of the cost of bad credit debt consolidation loan. Apply for free quotes form various loan lenders and compare and then decide on the one that costs less.

Bad credit debt consolidation leaves you with only one creditor. You face no more harassment from your creditors. The debt consolidation loan lender will henceforth deal with your previous creditors.

Your debt consolidation lender or agency cannot improve your credit rating. However, a bad credit debt consolidation certainly can have a positive effect on your credit rating. A bad credit debt consolidation effort is always looked upon as a constructive effort. Bad credit consolidation can slowly improve bad credit if payments are made on time.

A debt consolidation loan decision has to be taken with careful consideration. Otherwise you can end up in deeper debt problems. Carefully select your lender because lenders are known to miss or delay payments thus deteriorating your credit condition. Take care to repay all your debts in 3-5 years time period.

Bad credit debt consolidation leaves a lot of place for predatory lending. Beware of lenders who promise to take care of everything. None of your debts will vanish in thin air. It is a step by step process and with time bad credit debt consolidation will show its effects.

Finances require a devout determination. You have failed to show that twice – you require debt consolidation and you have bad credit. This is your opportunity to make that again alright. This is being called bad credit debt consolidation.

Loan borrowing is like once in a life time decision and much is at stake. It is indeed not a good thing that many people are misguided into taking loans that are not appropriate to their financial situation. This leads to many allied misgivings. As a financial consultant the only driving force of Ann Gibson is to provide proper knowledge. Because knowledge in respect to loan borrowing is power and exudes financial benefits.He works for uk debt consolidation site uk debt consolidations.To find a uk debt consolidation loan,debt management that best suits your need please visit http://www.ukdebtconsolidations.co.uk