CONSOLIDATION
LOAN
Debt consolidation loans are essentially equity loans
or second mortgages used primarily for the purpose of
consolidating various debts into one lower monthly payment
and convert the interest payments on those debts into
a tax deduction. Consolidation loans requires home ownership
because the loan is secured by a mortgage lien. Also,
you have to qualify for a loan, which may, or may not
be an issue depending on your credit and the amount of
equity in your home.
If you are considering alternatives to a consolidation
loan, such as a debt management service, caution is
recommended for this type of debt consolidation. Here
are some issues to consider:
Services that offer to negotiate the consolidation
of your debt with creditors may not tell you that some
loans are non-negotiable, including student loans, the
I.R.S., and secured loans.
Payments are collected by the service each month to
be distributed to your creditors and some companies
charge a retainer fee or contribution, which can be
equivalent to your first payment.
There have been reported cases of delayed payments
to creditors, which can result in the creditor adding
more late fees, or filing a property lien.
While debt services usually do not report to the credit
bureaus, your creditors may report the use of a counseling
service, which can have a negative impact on your credit.
Some non-profit services can be affiliated with for-profit
companies that collect certain fees that are in turn
shared.
Debt consolidation loans can provide homeowners with
a practical way to eliminate high interest payments
and save hundreds of dollars every month. Get free quotes
with no obligation.
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