Is consolidating debt good
If you have a good payment history with a bank, credit union or credit card company, asking that institution about a debt consolidation loan should be your first step.“If you can get your bank to approve a loan, that’s great," says Tim Gagnon, assistant academic specialist of accounting at the D'Amore Mc Kim School of Business at Northeastern University.If you need actual debt relief or don't qualify for loans, it may be best to look into a debt settlement rather than, or in conjunction with, a debt consolidation loan.Debt settlement aims to reduce your obligations rather than just reducing the number of creditors.Secured loans are backed by an asset of the borrower’s, such as a house or a car, that works as collateral for the loan.More-traditional, unsecured debt consolidation loans, which are not backed by assets, can be more difficult to obtain.Freeman says debt consolidation loans are most helpful for people who have multiple debts, owe ,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty in making payments or are unable to negotiate lower interest rates on loans.Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors.Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.There are several ways consumers can lump debts into a single payment.They also tend to have higher interest rates and lower qualifying amounts.Even so, the interest rates are still typically lower than the rates on credit cards. “Typically, the loan has to be paid off in three to five years,” says Harrine Freeman, CEO and owner of H. Freeman Enterprises, a credit repair and credit-counseling service in Bethesda, Maryland, and author of “How to Get Out of Debt.” These types of loans don’t erase the original debt; they simply transfer all your loans to a different lender or type of loan.