subject: Debt Consolidation – Is This The Best Debt Reduction Option? [print this page] Debt Consolidation Is This The Best Debt Reduction Option?
Debt consolidation is one of the oldest and most known methods of debt reduction. It is one of the first things that consumers think of when they become mired in too much credit card debt. They don't understand that it is also somewhat antiquated.
In order for debt consolidation to work, it requires a loan. An amount of money is needed to pay off all the unsecured debt, and where else can it come from but a loan. Unless the amount owed is relatively small, these loans require collateral, and there in lies the danger. Unsecured consolidation loans never amount to more than from a few hundred to maybe $1500. If a consumer is in arrears with unsecured debt already, there's little incentive for most lending institutions to take a chance on yet another loan.
To get a secured loan, it means putting up hard assets like property. For most consumers, it is a second mortgage or a home equity loan. If the consumer takes a good hard look at this proposition, it is fraught with danger. First of all, the consumer is trading unsecured debt for secured debt. That means too many missed payments or a default can result in loss of the property used as collateral. Second, the consumer is assuming that everything will continue to either stay the same or improve financially. That alone is a difficult assumption to make given the current state of the economy. Many people, including experts, didn't see the current downturn coming. Gambling is risky. Three, when there are methods available that don't require a secured loan for getting out of debt, why would a consumer do that?
The key lies in being informed about debt relief methods. Debt management and debt settlement are two methods that work to ease debt, and they do not require a loan. Both are programs that consolidate debt, but the principle amounts are negotiated down to a lesser level. Working through a debt resolution method like these gives a consumer the possibility of paying off all debts within 12 to 36 months, and a chance to start rebuilding a more secure financial life.
To obtain a secured loan using a home as property can put a consumer in arrears for years, and does nothing to work toward becoming debt free. It may seem enticing, but if the long term interest rates are considered along with the danger of loss, loans for debt consolidation may be the last possible thing to consider.
