Debt Consolidation & Debt Management

What is debt consolidation?

This type of debt is when a person chooses to obtain a new loan to pay out a number of smaller loans, debts. Debt Consolidation is an effective way to bring all the other debts together into an accumulative loan form that can be paid with one monthly payment. The reason why this is referred to as “consolidating” or “consolidation” is that this is bringing multiple debts together and combining them into one loan.

Who qualifies for debt consolidation?

When it comes to qualifying for a debt consolidation, the lender can have several terms but usually, there are only four, which are given and discussed below:

The 4 Major Debt Consolidation Qualifications

#1: Proof of income – In the list of debt consolidation qualifications, this is one of the most important one. Most lenders mark this as mandatory, they check your financial means and make sure that they are enough to sustain the terms of the loan.

#2: Credit historyYour payment history and credit report is checked by lenders.

#3: Financial stabilityLenders want to make sure that you’re a profitable financial risk.

#4: Equity – Collateral such as home equity is one of the most common debt consolidation qualifications for larger loans.

One thing to keep in mind is that there are different ways lenders approach debt consolidation qualifications and that some lenders might demand certain conditions that may seem to be unreasonable. That’s why it’s important to get advice from a finance professional when considering a debt consolidation loan.

Advantages of debt consolidation:

With a debt consolidation loan, instead of having to deal with several payments, you now only have to deal with one. Due to this, there is a reduced risk of missing on monthly payments.

Interest costs are likely to be reduced each month due to the fact that a debt consolidation is only one single payment rather than being several small ones.

A debt consolidation loan allows the borrower to pay off all the credit cards at the same time and lower the high interest that is paid on credit card debt.

There will be no negative effects on your credit rating if you make all of your monthly payments on your debt consolidation loan. In fact, since you have reduced your interest payments, it is possible that your credit rating will actually improve as a result of your new debt consolidation loan.

What is debt management?

Quite often, many people can find themselves struggling to pay their credit card bills every month and can’t seem to get any traction. In these situations, a debt management plan might help. A Debt Management Plan, also known as a DMP, is a debt relief option where a counseling agency works with your creditors to come up with a more suitable monthly payment for your situation. A single payment is made to a credit counseling agency, which then pays your creditors on your behalf.

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