Debt consolidation
entails 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.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt consolidation is often advisable in theory when someone is paying credit card debt. Credit cards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest.
Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending.
Mica
asked:
"Hello,I am seriously considering applying for a bill consolidation. I have a credit card with an extremely high interest rate 31% and need to shift the balance to an account with a lower interest rate. My credit rating is so-so...and I have only been approved for other accounts with half (if that) of what I owe. I don't want to hurt my credit score any further by applying for more and more accounts. I would like to know if you may have any idea about what type of collateral a bank would accept on a loan totaling $4,000. I am leasing my car & have no property in my name."
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Rachelsono replied:
"a Diamond ring/necklace/bracelet as long as it appraises for $4000.00"
Succes replied:
"Opt for a debt consolidation loan: The easiest method of getting a debt consolidation loan is to utilize the equity of your home. Equity of your home is calculated and determined by the difference in the amount you have paid and the amount you owe. If the amount you have paid is more than the amount due, you can use it as collateral. This allows you to borrow money on lower interest rates. Besides, you also get tax benefit on this type of loan. Consult your tax advisor before opting for this loan."
Miss Know It All replied:
"Try this first:The first thing you will need to do is call the three major credit reporting agencies and request a free copy of your credit report.Then once you get those in the mail (7-10 days) there will be a dispute form attached to the reports. Fill those out for every negative account on your report regardless. Fax, mail go online whatever it takes to get those submitted as quickly as possible. Then those companies must answer your dispute within 30 days or it is removed from your credit report completely. So that will eliminate some things, hopefully.Then make sure you pay all your revolving accounts to below 50% of your credit limits. Make sure that you make all your payments no more than 20 days from the date it is due.Good Luck!"
Windy
asked:
"Also, Do debt consolidation companies include federal educational loans into the consolidation?If you have a federal student loan, and the loan company offered a 1800 # for a consolidation company to take the loan and pay it?"
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Found-1 replied:
"Your chances are prob pretty good to consolidate federal student loans. Don't consolidate federal student loans in any non-student loan consolidation loans, your interest rate will likely be higher and the interest you pay would no longer be tax deduct able."
Mel replied:
"i think anyone can consolidate their federal loans THROUGH the federal loan company (direct loans). the government works with students to allow them to pay what they can if you are having problems paying your loans off. i would not have another company pay off your federal loans and consolidate through them. your interest rates will end up WAY higher. call direct loans and ask someone what your options are there. that would be your best choice."
Cosmetic Counter
asked:
"I have a subsidized student loan in the amount of $11,460.55, does anyone know the names of specific companies that have the best consolidation rates at this time? What are those rates?Well maybe I should ask, "which company offeres the best incentives and rate deductions"?"
Question posted courtesy of:
Sallie Mae replied:
"The federal consolidation loan has a fixed interest rate, based on the weighted average of the interest rates of the student loans being consolidated, excluding Health Education Assistance Loans (HEALs), rounded up to the nearest 0.125% or 8.25%, whichever is less. The weighted-average interest rate calculation is based on the official interest rates for the student loans being consolidated, exclusive of any borrower benefit or other special rate discounts.By law, all lenders are required to use the same interest rate formula for federal consolidation loans. Instead, you should consider customer service, flexible repayment options, online account access and applications, reputation and industry experience when selecting a lender."
there4u replied:
"This blog should give you some great companies. I ultimately went with American Education Services.Hope that helps,Alicia"
curious george replied:
"You'll have to shop around to find the best deal. Generally speaking, the companies that will give you the most incentives are the ones that are new and more willing to reduce their profits to get more customers. However, they'll also be less-likely to work with you if you need to defer payments or if some other issue comes up in the future.Here are a few places I'd check out: - student loans and consolidations - get up to four competing offers, no obligation - fairly large student lender/consolidatorBest of luck!"
curious
asked:
"Why would a student loan company advertise loan consolidation? Is there a cost to consolidting student loans, or any other loans? What is the lowest rate you can expect if you consolidate now? When is a good time to consolidate?"
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mntnck replied:
"when i did it once the only catch is that not all companys will alllow it. and if you miss even one payment they drop you and you have to go back and pay all the money."
Annie replied:
"One thing to watch for is that when you consolidate your education loans is to be sure you keep all the rights to deferment you previously had. Basically, this means that if you go back to school half time or more, np payments are required until you graduate or drop below the required credit hours and interest will not accrue. Deferement can also be used when you are unemployed or injured/ill and unable to work, but interest may continue to accrue under these circmstances. Most lenders do not charge fees for consolidating private loans and it is illegal to charge fees to consolidate federal education loans. Interest rates for consolidation of federal loans is dictated by the government and at the moment is at about 5.75. Private loans tend to run closer to prime and interest rates can run from 8.75 up to 13.0 depending on your credit and if you use a co-signor. Most education loans can not be consolidated if you are still in school. Once you graduate, you have a set amount of time in which to consolidate, or the loans will have to be repaid individually, as agreed upon with the original lender (federal loans usually come due 60 days after graduation while most private loans have a 6 month grace period in which to consolidate). Generally speaking, consolidation is best, but be sure to check the interest rates you got when the loans originated. You will get information on payment options and plans from the original lenders at least 30 days prior to graduation. If you leave school before then, you will need to contact lenders to begin the process. Do your homework and do the math..it is the only way to work out what is the best plan for you."
angel_nurse82 replied:
"Consolidation was a blessing for me, no extra costs, just an assurance to the loan companies that they were going to get paid--if the student has 6 loans what is the chance they are going to make 6 fifty dollar payments right out of college versus 1 one hundred and eighty dollar payment??? The only problem I had was that 2 companies accepted my consolidation, (without my knowledge) I had begun making payments to one, and had made 3 pmts, the other started sending me invoices that I owed them payments, and I had to call and straighten it out. Just watch out for that."
dancingwiththestarsfanfj replied:
"http://www.moneychimp.com/calculator/compound_interest_calculator.htmIt's always the compound interest."
Jimmy John replied:
"The best time to consolidate is when interests are starting to get charged to you. (different according to the type of loan you get).There's no catch, but you need to understand that you'll pay 2 times the loan if you consolidate over a long-time."
Dirk L
asked:
"These crooks known as Sallie Mae have screwed me. Two years ago I started receiving my student loans, and the interest rate at the time was only 2%. I even have a sheet of paper stating that.My total in loans was $42,000.I get my statement in the mail last week and suddenly I owe them $57,000 and they jacked up my interest rate to nearly 18%. I nearly cried. I called Sallie Mae right away stating, I cannot pay $688.00 a month it is just ludicrous.I only have a couple more weeks to find a cheap, but very respectable loan consolidation company. My sister uses Nelnet, but they haven't gotten back to me yet.For all of you college graduates what is a cheap, but VERY respectable and honest Student Loan Consolidation company?You can email me with details if you'd like.Thank You."
Question posted courtesy of:
jml167 replied:
"All of my student loans were through Citibank initially, and last year I consolidated through them. They gave me a 5% interest rate which I think is very reasonable. They have also been very helpful on the phone when I had questions and they have never adjusted my interest rates without informing me first. Their website is and I would recommend them highly."
God r replied:
"Students who are looking for a student loan should pick three schools they are most interested in, talk to the admissions office, and ask what is needed to apply in their school.A bad credit
depending on whether you are a homeowner or not. The rate of interest to be paid on unsecured bad credit student loans is higher than that on secured bad credit student loans. This is because the secured bad credit student loans are backed by your home as a security."
Pitty T replied:
"Student consolidation loan involves converting the loans taken by the students or parents into a single big loan from one lender. They are available as FFELP, FISL, Perkins, HEAL, Health Professional Student Loans, NSL, Guaranteed Student Loans and Direct loans. Few of the lenders let you consolidate these loans as private loans."
Whats my Name replied:
"You post your profile on this webiste and then lenders come to you. I recommend trying"
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There is often the inhibition about the need to take a student loan consolidation. Due to the increasing expenses of higher education, there is a huge array of students who have been either forced to or are in dire need of financing their education.
