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Saturday, May 21, 2011

Debt Relief Options - When Debt Consolidation Can Help

Perhaps you've run across the term "debt consolidation" while watching television or from junk mail you've received. You may have also found your budget getting tighter as gas prices, energy costs and even the cost of groceries keep going up. As a result, debt may be putting a crimp in your income more each day. You may start looking for debt relief as you find yourself using credit just to make ends meet. This can be the point when debt consolidation comes to mind.

Debt consolidation is when you combine your unsecured debts into a single payment or loan in an effort to save money. Another goal for consolidating debt is so that you can lower your monthly payments or reduce the interest rates on the debts. The ultimate goal, in addition to freeing up cash flow in your budget, is to totally pay off your debts.

If you're fortunate, you'll be able to qualify for an unsecured debt consolidation loan to use for combining your credit card and other unsecured debt. Although, for most people, a debt consolidation loan requires a secured loan for combining unsecured debts. Typically, the collateral used to a secure the loan is your house. For this reason, homeowners are regularly inundated with home equity loan offers.

The good news is, you'll most likely receive a much better interest rate on a secured debt consolidation loan because lenders assume a smaller risk. You'll likely find the lower interest rate to be a desirable way to consolidate your debt and keep more of your dollars in your pocket.

Another type of debt that may become difficult to manage over the years is student loans, either your own or ones which are used to pay for your child's college expenses. Student loans may also be consolidated, however, the process involved is different than what's used for consolidating other unsecured debt.

Generally, you are allowed to consolidate student loan debt with a private lender one time to receive a better interest rate. After you've taken advantage of the private refinance option, you can only refinance again through the Department of Education. Student loans are actually not refinanced. Instead, the amount owed on the student loan is locked into a fixed rate of interest, unlike standard refinancing.

You may be able to benefit from debt consolidation for both student loans and unsecured debt by being able to lower the interest rates and reduce or pay off your debts. Consolidating several debts into one low monthly payment can free up your budget and make it easier to make ends meet, although, it may require you to put your home on the line as collateral.

With careful research and planning, debt consolidation can have a positive affect on your financial circumstances. On the other hand, if you continue to incur debt, it typically will not improve your finances over time. So, if your income is spread too thin, do your homework and consider debt consolidation by becoming informed for the best results.

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