Debt Consolidation Programs

Debt consolidation is the process of replacing numerous loans, that are generally unsecured, with asingle loan that carries a low rate of interest. Debt consolidation service is provided by agencies thatare willing to assume the responsibility of negotiating with creditors and bringing down theoutstanding loan balance, in addition to providing a loan that carries a low interest rate. Credit cardand student loan debt consolidation are commonly sought by debt laden consumers. The latter is oneof the best consolidation programs, and is administered by the Federal Govt.

Credit Card Debt Consolidation Programs

The need for credit card debt consolidation cannot be underestimated, since defaulting on a coupleof credit card payments may result in the increase of interest payments by 30%. It sets off a chainreaction, wherein, a person is forced to pay a higher rate of interest on all the credit cards.Exceeding the credit limit is never recommended, since credit rating agencies may reduce the creditscore of the borrower by as much as 70 points.

Transferring Credit Card Balances: Transferring outstanding balances to another credit card is not apractical solution but may just help the consumer bide time. This solution may work, since theconsumer may be able to obtain credit cards with 0% introductory APR (annual percentage rate).Since, credit card balances are revolving, technically, there is no repayment period as far as theprincipal is concerned. With 0 % introductory APR, the consumer has the facility of borrowingmoney without having to repay the loan for a certain period of time.

Using Built Up Home Equity: Obtaining a secured loan using built-up home equity is one of the waysof discharging loan obligations. The built-up home equity, or the difference between the marketvalue of the house and the remaining mortgage balance, should be positive in order to avail asecured loan. The loan thus availed is called a home equity loan (HEL), and it obligates the borrowerto repay the borrowed sum in fixed installments, consisting of principal and interest payments overthe maturity period. Failing to discharge the loan can result in the borrower losing the house.Availing a Home Equity line of Credit (HELOC) using built-up equity can help the borrowerdischarge credit card debts.

Mortgage refinancing is another option that is available to a person who is interested in credit carddebt consolidation. Opting for cash out mortgage refinancing, that results in replacing a mortgagewith a loan that is bigger in size and has favorable repayment terms, may help.

Using built-up home equity to avail a home equity loan, a home equity line of credit or opting formortgage refinancing, will result in converting unsecured credit card debt to secured debt. This inturn puts a person in danger of losing the house in case he/she is unable to discharge loanobligations.

Alternatives: Borrowing from 401(k) or borrowing from life insurance may be an option for peoplewho are not interested in using built-up home equity for debt consolidation. Borrowing from 401(k)does not result in any penalties. As far as insurance is concerned, if the amount of loan exceeds thecash value of the policy, the beneficiaries will not be receive any death benefit.

Federal Student Loan Debt consolidation Programs

The government offers the facility of debt consolidation to a person who is straddled with studentloans, provided these loans have been obtained directly from the Federal Govt. or indirectly fromlenders participating in the Federal Family Education Loan (FFEL) program.

Debt consolidation is a feasible alternative to defaulting and dealing with debt collection agencies.