Loan Articles


Debt consolidation is the taking out of a loan for the purpose of paying many others. In doing so, a consumer can often secure a lower, fixed interest rate and enjoy the convenience of servicing one loan only.

Debt consolidation typically, though not always, entails the settlement of a number of unsecured debts through a secured loan against an asset which serves as collateral (e.g. a person’s house or car). It is the collateralization that leads to the lower interest rate of the consolidating debt. Since the credit lender is given a guarantee that they will have their money back, they can offer a lower interest rate.

Theoretically speaking, debt consolidation is advisable when one has to settle a credit card debt, since credit cards carry much higher interest rates than any bank loan. On the other hand, banks are less flexible when it comes to late payments. Be sure to you make your payments in a timely manner.

Below you will find some general guidelines on how to consolidate your current debts:

1. Avoid the services of debt consolidation companies. There is nothing they can do for you that you can't do yourself with a little time on your hands and proper research. Moreover, even though some firms claim to be non-profit, they will still be more than happy to charge you a fee in the vicinity of 2000 dollars;

2. Get in touch with the companies you owe debts to and try to negotiate lower interest rates. Be persistent: if it doesn't work with one official, ask to speak with another or call back after a few days. You are certainly not the only person calling.

3. Phone some credit card companies and see if you can open a promotional credit card account with initial six to twelve months of no interest. Be wary of companies that reserve the right to a no-reason rate increase or to a universal default. Such a right will entitle the company to raise your interest rate simply because you owe money to other financial and/or commercial entities;

4. If you still have credit in your lowest interest credit card, consider transferring other balances to that card. However, first check the transfer fees – sometimes they may be so high that a debt transfer is pointless;

5. Shop around for an unsecured debt consolidation loan with an interest rate that is smaller than that of any credit card you own. If you find one, pay your credit card debts with it. Be aware, though, that such a loan is hard to obtain, especially in an endangered economy like ours;

6. If you own a home, you may want to apply for a home equity loan or a line of credit. The interest you will be paying on them is often tax-deductible. However, make sure you will be able to make the payments on time, so that you do not jeopardize your property;

7. Ensure that the loan you are taking out does not include a prepayment penalty which comes into force if you pay your debt sooner than stipulated.