Debt Consolidation Loans – Defining the Pros and Cons of the Method

Debt consolidation agencies allege that debt consolidation loans can help create savings for their customers by reducing the amount to be paid for debts. The manner in which this will be realized is not immediately comprehensible to most people. 

Why will a person who legibly holds you in debt accept a payment lesser than what is owed? This and several other questions will be posed by the borrower who has been recommended a debt consolidation loan.

The key to this lies in the manner in which negotiation is conducted. Negotiation is the process of arriving at the settlement of some matter through discussion and compromise. Negotiation, as a function under debt settlement, involves one-to-one meetings with various creditors and requesting them to bring down the rate of interest. 

Doubt your negotiation skills! Debt consolidation loan provider ensures that borrowers benefit from the best negotiators that have been employed by them.

This feature of debt consolidation loans gives it a distinctive character. Only through proper negotiation, can the repayable debts be brought down. Though there is no fixed modus operandi, creditors of different debts will have to be dealt with differently.

Secured debts, for instance, will be immediately recovered by the lender through liquidation of the asset kept as collateral. They will not wait to be compensated by the debtor or the debt settlement agency. By agreeing to the terms and conditions of the secured debt, the debtor has consented to such liquidation in the event of non-payment of monthly installments.

What however works in favor of the borrowers is that a major part of the debts of customers is made up of unsecured debts. This is because borrowers fear securing too many loans on one’s homes or any asset. Unsecured debts carry a high rate of interest. Allowing the debts to rise at the prevailing rate of interest will create a very high debt burden. 

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Therefore, if the debt problem is to be addressed, one will have to strike at the roots, i.e. the rate of interest. The rate of interest has to be clamped down in order to bring the interest burden to a manageable level. 

Debt consolidation promises easy relief from the clutches of debt. As against bankruptcy and individual voluntary arrangement (IVA), a debt consolidation loan helps people repay their debts in a much smaller period. In the case of bankruptcy and IVA even if the debtor has repaid the debts, it continues to be shown in the debtor’s credit file for years. 

In the future, if the borrower wants financial assistance in the form of loans and mortgages, the bad remark on the credit file will pose difficulties. The borrower, in this case, is referred to as a problem case or a person with bad credit history.

The use of debt consolidation loans, on the other hand, is not revealed once the debts have been eliminated. Therefore, debt consolidation loans come as an easy solution for borrowers who do not want to extend the after-effects of the debt problem for a longer time.

Once a debt is incurred, the chance of incurring more debts increases. A cycle of debts comes into play. Expert guidance is necessary to break this cycle of debt. Experts who know about debt consolidation loans will not suggest debt consolidation loans at the first stage only. 

The first stage of debt is when the size of the debt is relatively small. Only when the size of debts becomes unmanageable is a debt consolidation loan recommended.

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There are a large number of banks and financial institutions that offer debt consolidation loans. Online service is available for borrowers who have a busy schedules. All the basic documentation, inclusive of the application, can be performed online. Loan providers also use online search facilities in order to find debt consolidation loans easily.

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