Debt Consolidation Options
Debt consolidation offers a debtor an opportunity to pay off multiple creditors by consolidating them into one easy monthly payment.
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Significance
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Debtors with an unmanageable debt load can work with lenders to consolidate all of their debts into one combined payment with a lower interest rate.
Types
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Debt consolidation options include balance transfers, home-equity loans and lines of credit, second mortgages, personal loans, loans from 401(k) plans, credit counseling services, social lending, and Chapter 13 bankruptcy.
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Benefits
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Balance transfers offer attractive introductory rates. Home-equity loans have low interest rates. Credit counseling services negotiate with creditors and make payments. Small banks are more willing to work with debtors than larger institutions. Social-lending clubs offer fixed terms and easy payoff dates.
Disadvantages
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Balance transfer introductory rates apply only for a short time before a higher interest rate kicks in. Home-equity loans put a person's home at risk in case of default. Chapter 13 bankruptcy negatively affects a person's credit. 401(k) loans have penalties for premature withdrawals and are due immediately if a person loses his job.
Considerations
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Debt consolidation doesn't always work unless a person stops acquiring more debt.
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References
Resources
- Photo Credit Debt--consolidation-loan.net
