Debt Consolidation is a procedure that a number of different people follow nowadays and ultimately what it means is that the person that is swimming in debt that happens to be far above what they have the ability to pay back is going to be the person that goes through a procedure that combines all of those different loans into one source of debt and therefore allows themselves to pay back the consolidated debt in a much easier and less stressful manner. Now, this is perhaps a definition that you've been exposed to before and while it sounds good on the top, ultimately it needs to be explained so that more people understand exactly what it is that is being talked about. We will break down a typical debt consolidation case over the rest of this article.
The Problem
The financial situation for the hypothetical person here has become very bleak. They have $10,000 left on their car loan, their mortgage still has a balance of $80,000 and when you toss in all of their other credit card debt, you get to the point where they are in debt up to $100,000 all things said and done. Now, $100,000 is a lot of money and in the case of a typical family it might even be more than three years worth of their wages, so ultimately when you take a look at the $100,000 of debt, you would want some plan that would allow you to deal with it.
The Solution
When you look at all of the different solutions, the first thing that you need to do in all of them is get your bearings. While the car loan and mortgage only represent two different sources of debt, the remaining $10,000 might come from as many as five or six other sources and that can make it very difficult to keep track of. So what you want to do is consolidate those debt sources into one debt source and the way to do that is to take out a home equity loan of $20,000 to pay off everything else and combine that $20,000 with the $80,000 mortgage that you already might have.
The Benefits
Aside from the convenience factor of only having one source of debt instead of several as was discussed above, there is also the interest rate factor. While the average mortgage will have an interest rate between 5% and 7% and most car loans will as well, credit card debt is usually going to be two to three times that amount and likely four or five times that amount if the debt is because of cash advances. So the interest rates would get lowered whenever you take a look at it that way.
Now, credit card minimum monthly repayment amounts are such that you are going to usually be paying at least 5% of your balance each month; in other words, credit card companies expect that any balance you happen to generate on your credit card can be cleared up in less than two years. Mortgages, as many people are aware, have 20 to 25 year terms and therefore the monthly repayment amount of consolidated debt will also be lower and therefore easier to manage.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
Refinancing to lower interest rate
By: Terry | 14-11-2008
why wont my bank allow my request to refinance my 2nd mortgage to lower interest. we are not asking for cash out, we have never been late in payment. bank is offering equity line of credit, with arm. originally this 2nd mortgage was heloc/arm. why should we go back? been there, done that.
What is the website to get the free annual credit report
By: Donna | 14-11-2008
What is the website to get the free annual credit report that the law put into effect a couple of years back?
Employer will not pay daughter
By: Angie | 14-11-2008
My daughter does no longer have a active bank account. Her employeer will not give her the paychecks she has earned because she is no longer doing direct deposit. Is this legal??
UFirst Debt management company
By: I am Mozart | 14-11-2008
Anybody use the company united First Finanacial and has success or failure they would like to share
Please do a more detailed analysis
By: chickenman | 13-11-2008
this is very badly written..... i was looking for an interesting analysis but found nothing more than 'lost job, can't pay mortgage, lost house = homeless' .......... DUH
What is a notice of satisfaction on a mortgage? I ...
By: Lolly | 13-11-2008
What is a notice of satisfaction on a mortgage? I received a legal notice stating that a VP of our mortgage lender had gone to the clerk of court and that the amount owed on our mortgage had now ben satisfied. My husband and I are separated and he has said all he wants is the house so I'm assuming this has something to do with that.
Q&A Powered by:
Latest Non-Fiction Articles
Hurry Down Sunshine
By: Michael Greenberg | 18/11/2008
The writing of a memoir is a tricky proposition, and not only because the form has been dragged through the mud by its own practitioners in recent years. Philip Roth has a passage in his novel The Counterlife about "the strange bind" in which the family members of a writer find themselves: "Their own material is articulated for them by someone else who, in his voracious, voyeuristic using-up of their lives, gets there first but doesn't always get it right."
The Frustrations of Dealing With Officialdom
By: Mark Coulthard | 18/11/2008
Trying to get an obviously wrong housing material accepted as
a mistake.
In the Lap of the Gods 23
By: Steve Morgan | 12/11/2008
Steve continues his fight against the headmaster and his Mother is appointed seamstress of the school!
Write Your Memoir: How to Write About What Troubles You the Most
By: Melinda Copp | 12/11/2008
Everyone has a story to tell, and unfortunately those stories aren’t always pleasant. What makes memoirs and other personal stories of recovery and triumph so appealing is that struggle is universal. And writing about it is one way—a great way—to make sense out of what troubles you the most.
Writing Classes – How They Can Accelerate Your Writing Progress
By: annette young | 12/11/2008
Writing classes can accelerate the whole learning and development process for all writers offering opportunities to acquire additional skills as well as to meet other like-minded people.
Have Someone Read Your Essay Before Submitting
By: Tom Noonan | 06/11/2008
When doing any sort of writing, it is very important to have some read it over to get a second opinion. This step is crucial because you, as the writer, typically know what point you are trying to make.
Satan's Utensil, or "my Palm is My Pilot . . . "
By: Benjamin Feldman | 03/11/2008
Charles Saatchi, Donny Deutsch: name any flog-master you care to. In my opinion they're second best, though, compared to the holy ones, those who bedeck Williamsburg's streets with the word of G-d. Suddenly last summer, out for a bike jaunt, my mind did a double take as I stopped to answer a cell-phone call. Plastered on a wall of one of the many Satmar institutions in Williamsburg, the fires of hell jumped out, licking at my heels. Was I in Brooklyn? Not.
Coming to America
By: DANIELSON | 02/11/2008
this story is about my travel to america
More from Kirrhi Kreamer
Loan Guru: Get Rid Of All Your Loans With Debt Consolidation
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
The high society life style that we lead today requires a lot of investments. We all want to stay in big beautiful houses, own luxury cars, study in leading colleges and universities and enjoy a wonderful holiday in the Caribbean islands.
Loan Guru: Home Equity Investments
By: Kirrhi Kreamer | 13/08/2007 | Investing
When the equity loan is applied for a small amount of fees is levied which includes the assessment and the other costs incurred by the company to decide for the loan amount.
Loan Guru: Debt Consolidation Companies
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
Debt consolidation loans can be a convenient way to reduce a number of bills and turn them into one monthly bill. Debt consolidation can reduce interest rates, secure a fixed interest rate for one loan and may even shorten the length of many loans.
Loan Guru: Disadvantages of a Home Equity Loan
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
A home equity loan is money that can be borrowed from homeowners using the equity in their home. With this type of loan, a homeowner is able to borrow up to $100,000 against the value of their home.
Loan Guru: Debt Consolidation Can Never Be A Mistake
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
The purpose of debt consolidation is to pay only one loan. Many individuals are faced with the problems of paying many loans.
Loan Guru: Home Equity Loans
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
There are a number of different loans available in the market today and while there are indeed many home loans available, home equity loans really do deserve to be put in a league of their own.
Loan Guru: Debt Consolidation Benefits and Drawbacks
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
Debt consolidation comes into play right after you realize that you are in an urgent need for money because you are deep in debt and interest rates, and the premiums you pay on your loans are no longer affordable.
Loan Guru: Debt Consolidation Benefits
By: Kirrhi Kreamer | 13/08/2007 | Non-Fiction
Debt consolidation is the technique of solving your debt related problems. In the present day scenario, debt has become a hazard consuming millions of people who are unable to pay their loans in time.
Writing 
