A lot of us have heard the words
Debt Consolidation but are confused about what they mean exactly and how a Debt
Consoludation Loan might help. In today’s world, with many of us struggling with
paying high interest rates on our debts, such as mortgages, credit card, store
cards, car leases and various other kinds of loans, it just takes one unexpected
event in life like an illness or an accident for debts to start spiraling out of
control and put extreme financial pressure on an individual and their family.
Hence it is essential for you to know what your options are and how a Debt
Consolidation Loan might be able to help, especially if your situation is so bad
that it has had a negative affect on your credit rating.
So what is a Debt Consolidation
Loan ? To put it simply, it’s a special type of loan that allows you to convert
or consolidate all your loans into one single loan. It involves combining all
your debts and loans, whether you are up-to-date with payments or not, into one
loan with a lower overall monthly (or fortnightly) repayment. A common
circumstance is if a person falls sick and cannot work leaving their not so
important loans like credit cards go into default. Just defaulting for one or
two months is bad enough but if you let these defaults run up to 3 or 4 months
or above, it is nearly impossible to catch up. Once you are in this
situation, your credit rating will be
affected and most traditional lenders would most likely refuse to loan you
money. Repayment history being the single most important factor in deciding
lending or refinancing potential.
Let us take a real life example
which could happen to anyone:
David was a fully employed office
worker in his mid-thirties on a salary package which comfortably supported his
day to day expenses and that of his family including his month mortage payments
on the family's home,
car loans and minimum payments on his credit cards. Unexpectedly he developed a
gall bladder problem which caused him to lose control of his bowels. Because of
the nature of his condition, he was forced to take six months off work for
treatment until he was fully recovered.
During this six month period with no
income coming in, the family was forced to pay for their daily living expenses
with credit cards. David was not in a position to pay his loans and defaulted on
his mortgage and car loans.
His loans looked like the
following:-
Mortgage: $202,000 at
$1550pcm
Credit Card: $22,000 at $660pcm –
Also in default with debt agreement to pay $10,000 to close
account.
Car Loan 1: $13,000 at $390pcm (3
months behind)
Car Loan 2: $29,000 at $900pcm (3
months behind)
The
critical things to consider in this situation were:
-
Bank was ready to foreclose on his home and both
car loans
- Credit card company was willing to take 10k to close
the account.
- Home Value: $330,000
- Total Loans: $ 254,000
-
Current repayments: $3500
Upon his recovery, David assessed
his situation and realised that it was impossible for him to try and pay off all
his defaulted loan repayments, credit cards as well as interest and penalities
etc associated with each of his loans. After being refused loans from a number
of possible lenders and being faced with the possibilty of losing his family
home, David was advised by a close friend to approach a debt consolidation
specialist.
Having looked at David’s loan
particulars and record, the debt consolidation expert worked out the following
deal for him:
Refinance all Davids loans into one
facility.
Loan:
$254,000
Repayment: $2438
David
reduced his outgoings by nearly $1000 per month, but best of all now has all the
lenders off his back. He is now able to put the past in the past and move
forward.
Debt Consolidation Loans are saving
various families like David's from losing everything they have worked hard for.
It is hence imperative that if you are in a similar situation to know how a Debt
Consolidation Loan could help you. Consult a Debt Consolidation specialist to
get expert guidance on consolidating all your debts into one single debt for
your future financial well being. For more information see Debt Consolidation Loan Example
For information on loans available see Debt Consolidation Loans and Debt Consolidation - Other Solutions
