What Are My Debt Consolidation Options?

Debt consolidation can be one of two things; a loan that is used to consolidate all your debts or a restructuring of all your unsecured debt through a debt counseling agency. A debt consolidation loan requires you to own a home and the debt consolidation loan will be secured with your home.

The major conveniences of a debt consolidation loan are one monthly payment instead of several, paying out less per month (you may pay for a longer period of time though), a lower interest rate then most credit cards and the interest is tax deductible.

The things you need to be aware of are: this loan is secured with your home, if you default on the loan the lender can foreclose on your home. The other drawback is the availability of the credit on the recently paid off credit cards. Unfortunately, many people use that credit and find themselves with credit card balances again within a couple of years.

The other type of debt consolidation is done through a credit counseling agency and it is a reorganization of your unsecured debts into one balance. You pay the counseling agency once a month and they pay your individual creditors. The benefits to this type of debt consolidation is one monthly payment, reduced or eliminated interest rates, eliminated late and overlimit fees, no collection calls, you will most likely be out of debt in 5 years or less.

The drawbacks to credit counseling are all your credit card accounts will be closed and it will lower your credit score somewhat. You are not supposed to open any new credit while you are enrolled in consumer credit counseling.

You have to be able to make at least the minimum payments on your accounts for either type of debt consolidation to be a viable debt option for you.

Debt Consolidation