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Debt Consolidation

A large majority of debtors around the world has problems with overwhelming debt. These problems have arisen from a number of circumstances and situations. Some credit card companies offered multiple cards to college students who could not afford repayments. Some debtors unfortunately lost their jobs or suffered the loss of an important bill payer. Another group of debtors fell behind because they did not have the proper education on smart spending and money management. Although the mound of overwhelming debt seems as if it is unavoidable, there is a way for a person to return to financial freedom. Debt consolidation is a resolution that can work for many people.

What is Debt Consolidation?

Consolidation is a process in which a consumer merges his or her scattered accounts into one account. All debtors are eligible for some type of process. A person can choose from a wide variety of options to consolidate debts. Each option has different criteria and qualifications. The amount of time it takes for credit score to recover depends on the option the debtor chooses. The best way to choose the most appropriate option is to conduct thorough research and speak with a counselor who can review the credit profile.

Debt Consolidation Loans

The most common type of consumer debt relief and organization is the consolidation loans. These are monetary disbursements that lenders issue borrowers to cover the amount of their existing debts. The benefits of such loans include lower interest rates and more convenient payment schedules. Instead of paying several individual creditors, the debtor only has one monthly payment to remember. This process helps those who have time management issues and organizational deficiencies.

Negative Side of Consolidation Loans

The down side to consolidation loans is that lenders may not make them available to all debtors. Most consolidation lenders require the applicants to have good credit standings at the least. The problem that arises frequently is that debtors wait until their credit situation is in shambles before they apply, which results in loan denial from traditional establishments. Unsecured consolidation loans are difficult to obtain for the person who has a negative credit profile.

Secured Consolidation Loans

Some consumers can qualify for secured consolidation loans. For these types of advances, the lenders require the applicant to put forth some type of property to secure the loan. A consumer can use his or her home deed, automobile title, and sometimes stocks and bonds to secure the advance. However, the risk for the consumer is high because failure to make payment can result in confiscation of the beloved property.

Balance Transfer Credit Cards

Debtors with a positive credit rating can use balance transfer credit cards as a do-it-yourself debt consolidation. Balance transfer credit cards allow a person to transfer balances over to the new card. Most balance transfer cards have introductory offers that award a zero percent interest rate for a certain number of months. The introductory period gives the consumer time to make hefty payments toward the merged balance before the interest period begins. Some consumers are content with this option.

Debtors who have fair credit or below usually do not qualify this option. Therefore, the downside is that people who wish to use this method must make an attempt before their credit ratings becomes undesirable. This option is best for the person who simply would like to organize finances.

Debt Management Program

A debt management program is a program that merges accounts without offering any finances. A negotiator works on behalf of the debtor to convince creditors to remove some of their finance charges, last fees and interest. After the negotiator speaks with all the creditors, he or she creates a repayment plan that works for the debtor and the creditors. The debtor pays the negotiator a single lump sum each month, and the negotiator pays the individual creditors. This program saves the debtor time and money. It can also get the person back on track with credit standings. The only down side of this program is that the debtor must make sure the organization is trustworthy. Proper research is essential for choosing the right establishment.

In addition to receiving debt management services, the debtor may also obtain credit counseling from the same institution. Credit counseling services can help a person to avoid future mistakes that leave that person in a financial bind. Many debtors benefit greatly from obtaining tips and guidance.

Individual Voluntary Arrangement

In certain countries, debtors can apply for individual voluntary arrangements (IVAs) or protected trust deeds (PTDs). These arrangements are alternatives to the bankruptcy classification. They are contractual arrangements between debtors and creditors. To qualify for one of these agreements, a debtor must owe money to more than two creditors. The total balances must be more than £10,000. The individual must also be willing to make monthly payments of at least £100, and that person's income must come from a source other than government benefits.

How IVA Works

The IVA has to go in front of a panel of creditors. At least 75 percent of the creditors must approve of the arrangement before the courts will legalize it. Once the courts approve the IVA, it is a legally binding agreement to which the debtor must abide.

Positive Side to IVA

The positive aspect of an IVA is that its existence does not prevent a debtor from receiving additional credit. Creditors see IVAs more positively than they see bankruptcy classifications. The negative side of an IVA is that the process could last as long as five years.

Debt Consolidation as a Whole

Consolidation is an excellent alternative to bankruptcy, which can paint a debtor in a negative light. Anyone who is suffering with a sinking credit score can receive help today by contacting a credit-counseling agency. A counselor can inspect the person's profile and offer the best consolidation solution for him or her. The consumer can try to consolidate debts before taking the drastic step of filing for bankruptcy status. In a majority of cases, the consolidation route works best.

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