subject: Consumer Consolidation [print this page] The concept of consumer consolidation of debt makes sense. For the person who is beginning to get behind in payments, it is a way that seems to lessen the debt load by rolling everything into one monthly payment that is usually lower than the sum total of the debts.
Far too many consumers only look at that part of the concept, and not into the future. Consumer consolidation means obtaining a consolidation loan, and unless the amount is very low, these loans require collateral. To provide that collateral, the consumer has to take out a second mortgage or a home equity loan, or provide another large, hard asset. The loans seem to have a lower interest rate, and they do in comparison with most of the high credit card rates, but credit cards are meant to be paid off quickly. The loans taken out for consumer consolidation are lengthy.
If these loans and their ultimate cost are analyzed, the interest rate paid out over the term of the loan is huge. It pays to look at the figures, and for those who do, they look for alternate choices.
Consumer consolidation loans are also based on the person continuing to have a steady stream of income. It does not allow for job loss, divorce, major illness that prevents work or any other number of circumstances that can effect income. With a consolidation loan, too many missed payment or default, and the collateral will be seized. So, what started out as a sensible seeming method of paying off debt turns into a personal nightmare.
As alternatives to consumer consolidation, there's debt settlement and management. They also roll debt into a monthly sum, but there is no loan required. It's all about working through a debt relief company, who will negotiate new principle amounts and deal with creditors. The monthly payment works toward sums that will pay off the newly agreed upon principles, and most consumers can see their way to being free of debt in as little as 12-36 months. A far cry from ten or fifteen year secured loans.
While debt settlement and debt management are not for everyone, they are sensible solutions for those who qualify. The real key to getting rid of debt is just that - get rid of it rather than rearrange it so it feels better. It pays for a consumer to do a little research and learn about what other options they have.
