Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.
Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.
Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.
Debt Consolidation Loans
An alternative to working with debt consolidation companies is to seek a debt consolidation loan. A debt consolidation loan combines unsecured debts such as credit card monthly payments into one single monthly payment. Consolidating your debt in a single low-interest loan can save on interest payments and speed the process of paying off debts. Here are two common loan types:
- Signature Loans only needs the borrower’s signature and promise to pay as collateral. Also known as a personal or good faith loan, eligibility is determined by a member’s credit history and debt-to-income ratio.
- Debt Consolidation Loans are personal loans used to pay off multiple other loans and/or credit card debt. The advantage to these loans is they’ll have lower interest rates than the original debt, and allow the borrower to make one payment per month instead of several.
As you face the difficult challenge of paying down excessive debt, you will be making many important decisions. Before you determine which approach is best for you, talk to Trinity first. The Trinity team can assist you during this difficult time. We’re ready to do a complete analysis of your financial situation and formulate a strategy that best suits your needs. Remember, the choice you make today will affect your credit rating now and in the future. If your debt has you down, we should talk. Call (800) 758-3844 or complete our online application. We can help you become debt free for keeps.