Consolidation Loans

With all of the increased pressures felt among ordinary Americans to lower their unwanted debt balances during this tempestuous economic climate, consolidation loans could seem at first glance to contain enough worthwhile incentives for needy borrowers to take notice, but there are hidden costs within even the most seemingly unbeatable deals whenever consumer finance is involved. Importantly, remember, when the authors speak of consolidation loans within this article, we’re ignoring such vividly foolish schemes as payday advances, vehicle title loans, the transferring of balances from one credit card to another for an ephemeral lapse of payments, or the enormous checks – consolidation loans, we suppose, in the loosest of possible definitions – which arrive unbidden at the doorstep of desperate borrowers and proudly feature interest rates and lending terms as harsh and usurious as the law would allow (and, often, a good deal more besides).

Modern consolidation loans almost always involve funds taken out against the equity of property, generally a second mortgage or the refinancing of a primary residence, and, regardless of the benefits involved, that’s a very dangerous game to play this moment in American real estate. Assuming the loan balances being consolidated were originally held by one of the credit card companies or an unsecured retail account, the consolidation loans would then feature interest rates markedly beneath what the initial obligations could possibly offer, and, of course, these lower rates have an obvious appeal for any consumer. Even those borrowers that consider themselves clever shopper inevitably fall prey to the simplest tricks of mathematics when decorously spun by well studied practitioners in the consolidation arts.

The loan officers representing the direct lender or the mortgage broker (there’s genuinely no difference between the two: prime interest rates are indirectly set by the United States Federal Reserve chairman and absolutely no institution should be trusted to not sell off their consolidation loans as assets) are ever eager for new business and their own subsequent commissions. Every financially strapped borrower – particularly those heads of household with the capacity to borrow against collateral but still somehow constantly juggling minimum credit card bills against the necessity of providing for their families’ required staples – should also be attracted to the much advertised payment reductions which consolidation loans protected by home mortgages virtually guarantee.

Honestly, should consumers be assured that they would be able to control their spending and imminently receive sufficient funds to satisfy the extent of their new mortgage – and, importantly, should they ensure that their consolidation loan does not feature a pre payment penalty – they may well successfully exploit a sweetheart consolidation loan so long as they avoid the mid four figure charges typically associated with the programs. At the same time, they should also look into some of the increasingly popular alternatives to bankruptcy or debt consolidation loans like the new settlement negotiation solution. Settlement negotiation hasn’t the provenance of consolidation loans quite yet, the process requires borrowers to sometimes actually increase their payments the first few months in order to more quickly liquidate the surrounding obligations, but, as growing numbers of Americans realize that they’d rather settle their unsecured loans than merely consolidate the worst bits (and, as property values dip with unprecedented speed, they realize the idiocy of tweaking the equity of their most important investment), settlement negotiation should continue to gain recognition as a healthy alternative to consolidation loans.

The decision to reach out for help with your debt is not one that's easy to make. You were raised to "do the right thing", but now it’s nearly unbearable. You struggle along while your creditors are turning up the heat. And now you’re at the point where the late fees, penalties and interest expense make it impossible to keep your head above water.

Ask yourself this. If you could eliminate your debt without permanently damaging your credit, why wouldn't you?

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