Debt consolidation is to take out a loan to pay for other loans or credits. It is a solution to reduce the amount to be paid monthly, but it often involves extending debt and often provide new guarantees as a House.
It is important to analyze the commitments acquired to the consolidated debt. There are many sad cases of people who have lost their home, after consolidating their debts. So we advise caution.
In this way, converted all the monthly payments in a single payment of less than the sum of all monthly payments you currently have, what is done is to group debts in one.
It is necessary to be the owner of any property, even if it is mortgaged, to carry out consolidation.
To cancel other debts, such as the mortgage interest rate is lower than personal loans, credit cards, etc. saves much on interests, therefore, the debt is reduced.
This makes single monthly fee that would have to pay after the reunification is also lower than the sum of everything what was paid before.
Finally, consolidation is achieved turn all current debts (short-term or long-term) in one single lower debt and long-term, and pay less monthly.
The requirements to consolidate debts are:
A copy of the monthly expenses to present it to the Bank and check if it is able to pay the unified monthly amount.
Have stable monthly income to repay the loans.
A co-signer is a person that firm to become responsible for payments if the person does not, or a material warranty, such as a house or a car.
Loans to consolidate debts are normally granted for the following debts:
Credit card debts.
Debts of cards granted by commercial entities.
Loans for studies.
It should be clear some aspects before you sign a loan for debt consolidation:
Cost of loan: to avoid paying high commissions.
Interest on the loan: the interest on the loan will normally be lower than the credit card. If the interest is very high it is not interested because the loan payments could not be done. It is worth getting fixed interest so that the monthly fee does not vary.
Loan fees: monthly fee has to be less than the sum of all payments separately.
Effect on history: institutions must explain what is the loan before you sign it, and must avoid the entities that are not clear in this regard.
But not all are advantages, some disadvantages of debt consolidation are:
In some cases, but less money is paid per month and interest on the loan are lower, if the loan is being paid to more time at the end pay more money.
If you have to put the House or another possession as collateral so they granted the loan, the risk of losing it if unable to pay the loans.
Lower interests mean that the lender ventured less to lend money, is likely to pay him, even staying with the House.
Non-profit agencies who grant loans to consolidate debt may convince people to let him manage the money.