Consolidation
Posted by on May 8, 2008 under consolidation | 
2 Comments to Read
The last decade or so has seen an unprecedented boom in consumer credit, with low interest rates and rising property prices fueling a constantly rising level of personal debt. Most forms of credit have experienced a bonanza, from credit cards to mortgages, with competition among lenders forcing the costs down and the range of features up.
Not surprisingly, this easy access to cheap credit has led many people to rack up debts in the expectation that the good times will last forever. Unfortunately, and predictably, this is far from the case.
Recent turmoil in the money markets has resulted in what many are calling the ‘credit crunch’, with banks unwilling to extend finance in the same carefree way they previously have, and interest rates are rising almost across the board. This is making the true costs of our debts ever more apparent, and in some senses the chickens are coming home to roost, and the number of people experiencing severe debt problems is rising rapidly.
What are your options if you find that your debts are becoming too much to handle? Somewhat paradoxically, taking out a further line of finance could be an answer, in the process known as debt consolidation.
The basic idea is to take out a loan large enough to clear all your existing debts, paying off all your credit cards and the like, and leaving you with just one single monthly repayment to keep up with. By taking out a loan at a lower interest rate than your current debts, this monthly repayment should hopefully be lower than your total repayments are at present. You can also further reduce the size of your repayments by spreading the loan over a longer repayment term, although it must be pointed out that this strategy will actually increase the cost of the loan over the long term - you’ll be paying interest for a longer period, and the total amount you pay will end up being higher.
So is debt consolidation a good strategy to pursue? There’s no doubt that when your finances are getting out of control taking a good look at the situation and simplifying it is a good idea, whether or not this involves taking out more credit. Indeed, some might even argue that consolidation is a ‘no brainer’ - you’ll be paying less each month and your money worries will be eased, so what’s the problem?
The major potential downside to consolidation is that the loan is often secured on your home, which effectively turns your current unsecured debt into secured debt, with all the risks of foreclosure that that can involve should you get into further difficulties somewhere down the line.
The second problem is that if you’ve found yourself unable to cope financially, then a consolidation loan may just be a sticking plaster hiding the problem for a few years without actually curing the underlying issues of a non-functioning personal budget. Sure, consolidation can ease the pressure in the short term and if done correctly can be a long term solution to pressing debt troubles, but it should always be conducted in conjunction with a thorough review of your income and expenditure if you’re to avoid even more severe difficulties in the future.
CA debt consolidation is no different from any other state’s consolidation firms, only that the laws may change slightly. Many of the debt consolidation loans offered in CA are lent to families and individuals to help them payoff their debts. If the money is used for any other purpose, the debtor may face penalties. Many firms–instead of giving the debtor cash–will manage the loan them self, using it to payoff the debts owed. Instead of paying your pending debts, you will now be paying off a loan lent to you by one of the debt consolidation agencies in California.
Rather, if you are paying for a vehicle, mortgage, or credit cards, then the debt consolidation agency will use the loan to payoff these debts, leaving you owing the amount of the loan, plus interest. Don’t be fooled! No one can really reduce your debts in most instances. Rather, no can reduce your debts more than you can yourself. If you contact your creditors before you land in the hands of the collection agencies, you can negotiate on your own. Some creditors will reduce you debts, while others may terminate the debt entirely.
The downside is that if the creditors wipe out your debt, or else reduce your debts, then in one instance you will be a ‘write off.” In other words, the information given to the IRS, which in turns adds the debt back to you by increasing your taxes. The solution isn’t entirely a bad deal, since the IRS only comes around once every year, which will give you some time.
Most people with credit cards utilize the cards to their limits and fail to make full payments on time. This is one of the primary reasons why people search for debt Thousands of people apply online for loans every day, and the commissions loan brokers receive for successful applications mean that it’s big business with plenty of money involved. Unfortunately, as in any area where there’s potential profit to be made, not everyone you’ll come across is totally scrupulous about how they try to make money.
Taking out a loan is a serious commitment with long term consequences, especially if you choose a secured loan deal, and so it’s important that you only deal with reputable loan providers and brokers. But how can you tell if a particular site is trustworthy? While it’s impossible to be 100% sure, the following pointers will give you a very good idea of whether you should proceed with an application or look elsewhere.
Firstly, you should never be asked to pay a fee up front, merely for making an application. These kind of loan sites are often scams, promising more than they can deliver, and you may well find that you pay the fee and get either nothing in return, or an offer of a loan that’s so expensive that it’s pointless taking it out. You might however be charged an arrangement fee once your loan has been agreed and you’ve signed on the dotted line - this is perfectly okay and normal, especially where there’s an element of bad credit or self certification involved.
You should also avoid dealing with sites who insist on you telephoning a premium rate number as part of the application process. In these cases, it’s very likely that you’ll be kept hanging around listening to pointless but official sounding messages, all the while racking up a hefty bill. If you need to phone the loan arranger, it should ideally be on a freephone number, or at least a standard rate one.
Most of us find it easier and quicker to apply for finance online, and there are countless numbers of sites that allow this. However, not all of them feature a secure application form. It’s not just credit card details that need to be protected online - the personal details asked for on the average loan application form would also be very useful to criminals engaged in identity theft, and so you should only offer information to a site with proper security and a valid certificate to prove it.
On a related note, you should check whether the site is registered under the Data Protection Act, which reassures you that the information you’re parting with will be used correctly and ethically.
Finally, are the loan providers or brokers licensed credit brokers? It is a condition of providing credit or advising on it that the agent holds a valid consumer credit license issued by the Office of Fair Trading. This license can be withdrawn if the holder is found to be acting improperly, such as providing loans under false pretenses, or giving misleading information or advice. Thus, holders of a credit license are likely to be more trustworthy than some anonymous site that is unregulated and may not even be based in the same country as you.
Even if you follow all this advice, you could still come up against a lender who is more interested in their own profit than conducting business fairly. Remember though that you should never be under any pressure to take out the loan, and you can cancel the whole If you’ve watched any amount of daytime TV, especially on minority channels, you can’t fail to have seen some of the many adverts extolling the virtues of taking out a loan secured on your home. These adverts all seem to follow similar themes - a busy family situation with smiling children but a somewhat saddened parent pondering on their financial troubles, with the suggestion that taking out a loan will free you from your financial worries and lead to a brighter, happier life.
The implication of these promotional messages is that taking out a secured loan is a beneficial part of everyday life, and one which you’d hardly need to think twice about pursuing. In actual fact, a secured or homeowner loan represents a very significant financial decision with ramifications far into your future, and at least one loan company has recently been censured by the financial regulators for not sufficiently emphasizing the gravity associated with such a financial commitment.
Of course, there are times in life when we really do need a helping hand, especially when existing debts are becoming unmanageable or we’re faced with an essential but unaffordable expense. In these kinds of situation, a secured loan can work out well if properly researched and planned for.
However, many people are tempted by the prospect of having some extra cash available to buy luxuries or improve their homes, and take out a loan when they don’t really need one, or take out a larger loan than is necessary to fix their financial problems. This is a very bad idea, as the whole point behind a secured loan is that you’re using your house to guarantee that the debt will be covered. If you get into difficulties somewhere down the line you run the very real risk of losing your home. You may also be tied to your loan for a long period of time, with repayment terms of up to 25 years not uncommon. The amount of interest you’ll pay over that period can be considerable, and if you work out the figures you can easily find that you’re paying well over the odds in the long term for a short term luxury.
Not that this means that you should never take out a secured loan, but it will stand you in good stead to properly consider whether the serious commitment of a secured loan is the most suitable course of action to take, or whether an unsecured method of finance such as a smaller personal loan or an cheap rate credit card might be a more sensible option.
After all, if you do have money worries at some point in the future, the last thing you’ll need is the additional stress of facing the prospect of losing your home.process without charge at any point up to signing the loan agreement.consolidation.
