Author: Vishal Verma Added: August 21, 2008
Many people would advise you to consolidate loan to pay off debt. Let us discuss the consequences of the same and look at an option called debt settlement. When you get a consolidation loan several things happen. First the equity in your home gets "cashed out" meaning the homeowner now owes that much more on their home than they did before. This increases the overall payments as the closing cost and other fees get added into the loan. The homeowner would typically have an additional debt to pay (second mortgage) or at least have a significantly higher monthly payment than he did before. This may be cost effective depending on what rates of interest were being changed on the debts and is being charged on the mortgage. If things work out well, then in certain cases debt consolidation can be a good option. What also happens is that previously unsecured debt such as credit card debt is replaced by new secured debt. That means that previous credit card debt that had no security now is secured by the home owner's home! Would you even prefer spending a single dollar on your credit card if you knew it would mean losing your house if you can't pay? How many people think that getting a lien on one's property is not a bad thing? Well, believe it or not, securing unsecured debt is effectively a person paying to have a lien placed on their home. Also with unsecured debt there is hope of bankrupting the debt if all goes wrong but with a "consolidation loan" the only way to escape the new debt is to foreclose/surrender one's house if payments can't be made. Instead of considering a debt consolidation loan one might also consider debt settlement. Debt settlement does not secure your unsecured debt. Also, instead of paying the whole debt (plus closing costs) the client pays a fraction of the debt over time. The monthly payments are much more affordable. Debt settlement gives an option of becoming debt free in 3 to 5 years. The tenure of the program and the single monthly payment is decided by the client. This gives the comfort of becoming debt free even without securing the unsecured debt. The only downside is that credit can be affected negatively by this program; however for many people that sacrifice is better than paying tens of thousands of dollars more to pursue other options.
--- We provide Unsecured Debt Relief for people facing financial hardship. Feel free to contact us for Unsecured Debt Settlement.
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