You cannot and should not borrow your way out of debt, especially if you are currently not able to manage your debt. Doing so will result in extended payment plans, and, in the end, you will be deeper in debt than when you started. This is precisely the foundation that debt consolidation programs are built on. By extending your debt timeline you will pay more money; that money then gets paid to the debt consolidation company you “hire” to help you manage your debt.
Debt Consolidation Options
You have a few options when considering debt consolidation – each works better in different circumstances and for people with varying financial responsibility levels.
- Unsecured Loans
- Home Equity Loans
- Debt Settlement Programs
- Debt Management Programs
- Chapter 13 Bankruptcy
Unsecured loans and home equity loans require responsible financial management skills, because they must be followed and managed with close attention to detail.
The settlement and management programs enlist the help of a third party which charge fees for their services. Often the amount you pay in third party fees plus creditor late fees, penalties and interest rates add up to be more than the amount you are trying to save by enrolling in these programs. Additionally, fraudulent businesses and scams litter the debt settlement and consolidation industry making it difficult to find and trust reputable agencies and companies.
Chapter 13 bankruptcy typically enlists the help of legal professionals, experienced and educated bankruptcy attorneys, that deal with unmanaged and out of control financial situations on a daily basis. In addition to professional support, this debt solution offers a manageable repayment plan with a fixed timeline and requires creditor cooperation.
The trick with all debt consolidation options is making sure the terms you agree to will indeed improve your financial situation. If you can’t get approved for the right terms you will be putting yourself in a worse situation than where you started.
Debts Than Can Be Consolidated
Each debt consolidation option will have different terms and allow you to consolidate different types of debt. Generally, unsecured debts are the only type of debt that can be consolidated. Unsecured debt is not secured by any asset or property; an agreement is all that holds you accountable to pay your debt.
Unsecured debts include:
- Credit Card Debt
- Department Store Cards
- Utility Bills
- Medical Bills
- Personal Loans
- Student Loans
- Taxes
- Collection Agency Debt – when secured debt gets turned over to a collection agency it becomes unsecured
- Phone Bills
Debts That Cannot Be Consolidated
Secured debt usually cannot be consolidated. There are refinancing options for these types of debt, but they are not permitted in any of the debt consolidation options listed above.
- Mortgages
- Car, motorcycle and boat loans
Secured debt, as a reminder, is backed by an asset or property; if you don’t make payments on your debt, your creditors can reclaim your property and sell it to pay off your debt.
Talk to a Professional
Before entering into a debt consolidation program, talk to a legal professional. A legal professional will assess your current financial situation, without obligations and free of charge, and lay out all of your options that can get you to debt freedom. There may be viable option for freedom from debt a legal professional may introduce during your consultation that you may not have considered, but may actually be in your best interests.
Talking to a professional doesn’t have to be your final decision; think of it as a step in your research phase and it won’t seem as scary, official or absolute.
Sources:
Project Debt Relief: http://www.projectdebtrelief.com/8-types-of-bills-that-can-be-consolidated/
Star Loan Services: http://www.starloanservices.com/debt/consolidated.htm
