subject: Debt Relief Services – Is Debt Consolidation A Way Of Robbing Peter To Pay Paul [print this page] Debt Relief Services Is Debt Consolidation A Way Of Robbing Peter To Pay Paul
When debt becomes a prominent figure in your life it make your day to day life very stressful and often unbearable. These high levels of loan can eventually lead to some late payments or even missed payments. These are some problems we all want to avoid.
Debt Consolidation:
One of the effective ways to counter debt is through debt consolidation. This method allows a consumer to pay off all his outstanding loans by entering into a new loan that consolidated all those debts into one with a new rate and a new payment plan. As many believe, this not just some method in which you rob Peter in order to pay Paul. This is a very systematic method of consolidation your many loans into one big loan which will be offering you lower interest rates than what you are paying currently on those loans.
Benefits of debt consolidation:
There are mainly 3 ways in which consolidation of debt can help out those customers who owe to many creditors. The first benefit is the interest rate. A consolidation will usually offer you a much lower interest rate which will bring down your monthly payments to much less than what you had been paying to your creditors earlier. Your payment in the form of interest reduces considerably. The main reason for this is because these loans are secured loans. It also helps a debtor to bring down all his credits down to one single rate rather than paying different rates on different loan. Lastly, the debtor has the ease of catering to only one loan.
Downside of debt consolidation:
There are some drawbacks of this method also. One of the main drawbacks is that you have to usually put up a house as collateral. In case the debtor is unable to pay off this debt he would be losing his house. Turning an unsecured loan into a secured loan can be potentially risky for those who are facing serious financial trouble. In case of unsecured loan, if a consumer defaults there basic means of survival does not get affected whereas in case of a secured loan the creditor has the permission to collect the collateral as per the terms of agreement of the loan. Another drawback is the duration of the loan. Usually the period of the debt consolidation loan is very long. During this period the debtor ends up paying much more than what he would have paid if he would have remained with his original creditor.
