Debt consolidation is not for everyone, there are some debt situations that should not be solved via a debt consolidation program because the benefits that debt consolidation provides are not applicable to every form of debt. Learn how to find out whether you will be able to take advantage of a debt consolidation program or not.
Before contacting a debt consolidation agency you need to make sure that by consolidating your debt you will be improving your financial situation. Otherwise you will need to resort to other forms of credit and debt repair. Since debt consolidation is mainly based on debt negotiation, you have to make sure that the type of debt you have is suitable for this method of debt reduction.
Pre-Payable Debt And Negotiable Debt
In order to be suitable for consolidation debt has to be susceptible of being prepaid and negotiated. This is an important issue because if your debt does not have either of these characteristics, you will not be able to obtain any benefit from a debt consolidation program. Let’s analyze these factors separately first.
When you prepay your debt, you are modifying the repayment schedule by paying part or the full amount of the money owed in advance. According to the contract, debt can assume three forms when it comes to prepaying: Prepaying can be authorized either explicitly or implicitly (if the contract says nothing about the issue), prepaying can be authorized but penalized with a prepaying penalty fee or prepaying can be forbidden. If prepaying your debt is forbidden the only form of debt consolidation available is negotiation and resorting to a debt consolidation loan is not feasible. If there are penalty fees, you need to ponder the fees in order to see if consolidation would be to your advantage or not (you may end up paying even more).
By negotiating your debt, you agree with your creditors new terms for repaying your loans and other forms of debt. Not all debts are negotiable and non-negotiable debt cannot be consolidated unless you can repay the debt in full (by means of a debt consolidation loan). Generally speaking, secure debt is non negotiable. This is due to the fact that since secured debt provides the lender with a real estate guarantee, he can always recover his money through legal means knowing that his money is protected with the property used as collateral.
Consequences Of Both Characteristics
If your debt is mainly composed of either of these types of debt or worst, a combination of both, chances are that consolidating your debt will became undoable. Non-negotiable debt can be consolidated via a debt consolidation loan (which implies repaying your debt and taking new debt under different terms) if debt is pre-payable. Non pre-payable debt can only be consolidated through debt negotiation as long as it negotiable.
Any non-negotiable and non pre-payable debt becomes an inevitable obstacle against debt consolidation. If a high proportion of your debt falls into this category you will need to consider other options because debt consolidation is not for you. Otherwise, you can both consolidate through debt negotiation or debt consolidation loans and you will be able to reduce your debt and monthly payments.
Related Articles
What are the Risks of Debt Consolidation?
By: Melissa Kellett | 01/04/2008 | Debt Consolidation
Debt consolidation is not such wonderful solution as it may seem. There are many consequences implied in undertaking a debt consolidation program that can really affect your finances and credit situation for many years. And even though sometimes the only other solution is bankruptcy, you need to take many precautions before hiring the services of a debt consolidation agency.
How To Get Your Credit Card Payments Under Control
By: Lee Dobbins | 07/12/2005 | Debt Consolidation
Credit cards can be a nice convenience but they can also get you into a lot of trouble. Learn two methods of getting your credit card debt under control.
Should You Consolidate Your Debts?
By: Terence Young | 07/10/2006 | Finance
If you have gotten yourself into debt over your head, you are probably wondering, should you consolidate your debts? It can help you manage matters and get those debts paid off, but it isn't for everyone. In addition, some people qualify for credit counseling, which will help you pay off your debts by reducing the interest and payments for each. Hopefully you can get out of debt without going this far.
Credit Card Consolidation- A Great Way To Lower Interest Payments
By: Jeff Dragt | 06/11/2006 | Advice
The most popular form of debt consolidation is called credit card consolidation. This method is used in order to reduce the high interest rates charged by credit card companies.
Tips For Staying Out Of Debt
By: Brian Dolezal | 25/01/2007 | Finance
Although there is no actual debtor's prison, being buried under a mountain of bills can feel very constrictive. With a little discipline and a lot of persistence, you can happily maintain a lifestyle that will never be in need of debt relief again.
Buy yourself Some Time With Debt Consolidation
By: Melissa Kellett | 25/03/2008 | Debt Consolidation
If your current financial situation is full of twists and turns and you need a break and some ease in order to avoid bankruptcy, debt consolidation can buy you some time so you can wait till your income stabilizes and you can honor your obligations. Learn how debt consolidation brings debt relief to your complex credit problems.
Borrower Beware - All Credit Scores Are Not Alike
By: Lee Dobbins | 13/12/2005 | Debt Consolidation
Learn more about what your credit score means and how different lenders might view your credit differently.
Home Equity to Pay Credit Card Debt, Bad Idea!
By: Pat Hicks | 28/02/2006 | Debt Consolidation
Believe this! You can overcome or solve or successfully live with any problem you will ever have to face including credit card debt. If you are committed to making a plan, setting some goals, working your plan, and doing the things that are proven to work
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
What should I do if I don't have a credit card and ...
By: anna_nikitina | 09-05-2008
What should I do if I don't have a credit card and want to book tickets on nationalexpress.com?
Will a federal tax lien prevent admission to law ...
By: lhagar | 09-05-2008
Will a federal tax lien prevent admission to law school?
I am on H4. Pursuing MBA and have 4courses to go ...
By: Pradeep2008 | 09-05-2008
I am on H4. Pursuing MBA and have 4courses to go (12credits). I am planning to apply for F1 this month. adviser suggested to take a break in summer and if i get F1 can do 3courses in Fall and one course in Spring. That way i will miss the H1 application deadline for 2009 as spring ends on April 27. Can i take just 1course in summer now and 3 in fall and then if i get F1 can i just take one additional course in Spring to fulfill requirement?
Dual Credit
By: Dedeepya | 08-05-2008
Does UT, Austin accept Dual Credit?
Secured Account Balance??
By: elideneed | 07-05-2008
I have a "secured account balance" on my credit card. What does this actually mean? Can I use that balance towards a major purchase? If so, what are the steps to obtain this balance for a major purchase?
I filed chapter 13 which included a personal loan ...
By: JLEN629 | 04-05-2008
I filed chapter 13 which included a personal loan where i put my car up for collateral. The car is now totaled. Who gets the money from the insurance me or the lien holder?
Q&A Powered by:
More from Melissa Kellett
The Income Factor in Bad Credit Loans
By: Melissa Kellett | 07/05/2008 | Loans
There is a lot written about credit requirements for loan approval. However, there is little being said about the income factor. Income is as important in the approval process of bad credit loans as credit score and probably even more. Since bad credit loans are tailored for people with bad credit, credit history comes to a second place in the loan requirements list and the position is taken by your income.
It is True! You Can Consolidate Your Debt With Credit Cards
By: Melissa Kellett | 07/05/2008 | Debt Consolidation
Believe it or not, there are ways to consolidate debt with an intelligent use of credit cards. It is not a very orthodox system but sometimes due to bad credit, people do not have other options.
Improve Your Home Regardless of Your Credit
By: Melissa Kellett | 07/05/2008 | Loans
Less than perfect credit can sometimes get in the way between you and your desires. Getting a personal loan to make home improvements can be really difficult for people with bad credit and almost impossible to those who have gone through a bankruptcy. However there are Bad Credit Home Improvement Loans available and qualifying is not that hard.
Improve Your Credit Score With Homeowner Consolidation Loans
By: Melissa Kellett | 07/05/2008 | Loans
Debt Consolidation Loans are usually recommended when someone has debt problems because these loans reduce the amount of money spent on interests, lower the monthly payments making them more affordable, and turn an otherwise descendent credit score tendency into a virtuous circle of ascendant credit score. But, did you know that homeowners can get better deals on consolidation loans?
Debt Relief Comes in Many Tastes
By: Melissa Kellett | 07/05/2008 | Debt Consolidation
Debt relief is a wide concept which includes different programs for reducing overall debt and debt exposure. It is important to understand the differences between the several programs as not all of them are available for everyone and even if available not all of them might be to your advantage.
Credit Cards Can Aid Bankruptcy Loan Approval
By: Melissa Kellett | 07/05/2008 | Credit
At this point you probably know that in order to get approved for a loan after bankruptcy, you need to improve your credit history and raise your credit score. There are plenty of ways to do so but the use of a credit card is an excellent alternative as it will aid you to recover your credit faster and more efficiently.
Cash-out Refinance Loans are Really Such a Good Deal?
By: Melissa Kellett | 07/05/2008 | Loans
Getting extra money when refinancing your home loan can be really tempting because it is a very cheap source of financing. But, is it really such a good deal? Does that money come for free or are there additional costs to consider? In fact, how much does refinancing really cost?
Steps for Getting Approved After Bankruptcy
By: Melissa Kellett | 29/04/2008 | Loans
Trying to get finance after bankruptcy without preparing yourself it is just like knowingly jumping into a pool that has no water. By applying for a loan after bankruptcy your are risking getting declined and lowering your credit score even more. If you plan to apply for a loan, you need to do some homework beforehand in order to increase your chances of getting approved.
Finance 
