Debt Consolidation

For consumers who are considering debt consolidation, it's just as vital to weigh the pros and cons carefully. For example, consolidating many debts into a single loan can reduce your number of payments and creditors, making managing your money and financial planning much easier.

Those who consolidate can further benefit from reduced interest rates and even earn tax breaks, since home equity loan interest can be written off, while credit card interest payments cannot. On the down side, though, debt consolidation can make it easier to get further into debt, GreenPath said.

With a lower payment and no more pressure from creditors, many consumers continue using credit cards and fail to change the spending habits that got them into trouble in the first place, the counseling service said.

Another down side to consolidation is that it costs more in the long run. Most consumers, GreenPath said, end up paying for the debt over 10 to 30 years, spending much more than they would have had they kept each individual loan.

Consolidation can also put your home and other assets at risk since most consolidation loans are secured. That means, if you fail to pay, you will lose whatever is securing the loan -- in most cases your home. To keep themselves out of hot water, one of the best moves for consolidators is to close all credit card accounts to avoid any temptation to reuse those lines of credit, GreenPath said. On another front, homeowners and renters also shouldn't forget to document items they own for insurance, estate planning and sales purposes in the coming year, says the American Society of Appraisers.

Bruce Williams writes: "Debt consolidation is just another name for borrowing money from one source to pay another. If you are ineligible for a loan because of poor credit, there is no point consolidating because that is, by definition, a loan. I think you are talking about companies that negotiate with creditors to lower interest rates. While that has some merit, given the fact that your credit is already destroyed, you should realize that some of these "nonprofit" organizations not only charge an up-front fee but also a percentage of what you are paying. While the overall number you pay per month is less — owing to the company's ability to negotiate with your creditors — I would be reluctant to pay a continuing fee. I have always recommended Consumer Credit Counseling Service. They have been around for a long time — with an excellent reputation."

From the Daily Mail:

Many young Britons are committing financial suicide with a high-spending lifestyle they cannot possibly afford, experts have warned.

They are pursuing the lifestyles of A-list celebrities with only a Z-list income, often displaying a reckless attitude to borrowing, say the researchers. Many young adults do not view bankruptcy as shameful, instead seeing it as a tool to escape large debts amassed though buying fashionable clothes, going on exotic holidays and socialising.

Twenty years ago, going bust was a mark of shame and a demonstration of failure. However, the researchers found: "A core minority saw debt consolidation and insolvency as easy ways out of problem debt." Chief executive of Standard Life Bank, Anne Gunther, said: "We are not only seeing people trying to 'keep up with the Joneses' but also aspiring to a lifestyle more akin to A-list celebrities.

"Credit is not only freely available but considered a way of financing lifestyles rather than reflecting need. "A seismic change in mindset is required to begin to unwind the chronic debt issues we face in the UK. "Pinning your hopes on housing equity or thinking that insolvency is the easy way out is financial suicide."

Here are five fixes for debt problems:

# Get a cheaper credit card. If you’re paying an interest rate above 20%, you’re paying too much.

# Switch your mortgage. Cutting just 1% off your home-loan interest rate could save you thousands of rands.

# Reduce your debt payments. If you have a number of small debts, such as personal loans and credit cards, wrapping them into your mortgage (known as debt consolidation) could reduce your monthly repayments. But you could end up paying more in interest in the long term.

# Don’t blow your bonus on treats. Pay off debts (the money you save on interest payments will pay for treats all year long) and put the rest into a savings account as soon as possible.

# Get a better bank account. Many people are paying too much in bank charges. Save money on charges by using your debit card instead of cheques and pay your bills online instead of at the bank’s branch.

Tom Smith reports:

A number of young adults thought that debt consolidation or insolvency were the solutions to sorting out their debts according to the report from the PFRC. The report also showed that consumers across all age groups looked upon rising house prices and increased equity levels as a solution to dealing with their debts.

According to officials consumers have become so reliant on these 'solutions' that they do not bother to look at any other alternative, instead relying on credit to fund everyday life. The research was commission by Standard Life, and an official from Standard Life said that there had been a dramatic change in consumer attitudes towards debt over recent years.

One official stated: "Credit is not only freely available but considered a way of financing lifestyles rather than reflecting need. A seismic change in mindset is required to begin to unwind the chronic debt issues we face in the UK. Pinning your hopes on housing equity or thinking that insolvency is the easy way out of debt is financial suicide."

An official from the Consumer Credit Counselling Service was also concerned at the level of people that saw their homes as what he described as a 'get out of jail card'. He even went as far as to say that many people that owned a home were at even greater risk of debt problems, stating: "It's time to put an end to the old shibboleth that buying a house is always good for you. A large proportion of the people who turn to us for help are those who have taken out mortgages which they cannot afford, leaving them highly vulnerable to interest rate volatility."

Here's a story on debt consolidation:

Have you decided to apply for bankruptcy? If yes, you should reconsider your decision. It is not in your best interest to apply for bankruptcy without first exhausting other available options. Bankruptcy should always be a last resort to tackle your financial problems. Many lenders offer debt consolidation option to the borrowers so that they can recover financially. By consolidating their debts, some people are also able to save money. Very often, people save hundreds of pounds by repaying their expensive credit card debts with the help of a new low-rate loan. The best time to do this is after the festive season ends at the end of the year.

Debt consolidation loans are available for the UK borrowers in two ways. They have an option to pledge their homes for securing these loans. If they decide against pledging their homes, lenders will not oblige them by giving large loan amounts. The repayment period will also be short in this case.

Here's a UK report:

Credit information experts, Equifax, said many people relying on taking out a loan to pay off credit and store cards may find that come the new year they face difficulties getting this kind of credit. The warning comes as uswitch.com, the independent price comparison site, revealed UK consumers could save Ł15 billion in interest by consolidating all their unsecured debts into a low cost personal loan. It said this could mean the difference between getting by or, for those teetering on the edge, being pushed into insolvency. However with total UK personal debt at the end of October 2007 at Ł1,391 billion and average household debt in the UK at Ł55,877, including mortgages, Equifax thinks people should exercise some caution when applying for more credit.

The Onion reports:

WASHINGTON, DC—Plagued by late fees, high interest rates, and harassing creditors, the U.S. took out a debt-consolidation loan Monday, combining the nation's $6.1 trillion debt into a single, easy monthly payment.

After extensive meetings between E-Z Debt officials and the Treasury Department, an arrangement was reached which provided a manageable payment plan—with no threatening phone calls or military invasions from creditor nations.

"In the end, everybody came to see that E-Z Debt isn't just another loan. It's a way to get out of debt without declaring bankruptcy," Daschle said. "Thanks, E-Z Debt. We couldn't have done it without you."

Wikipedia says that debt consolidation means "taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower."

Here are my recommended links on debt consolidation:

Debt Consolidation