What is 'Debt Consolidation'
Debt consolidation means taking out a new loan to pay off a number of liabilities and consumer debts, generally unsecured ones. In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable pay-off terms: a lower interest rate, lower monthly payment or both. Consumers can use debt consolidation as a tool to deal with student loan debt, credit card debt and other types of debt.
Methods of Debt Consolidation
There are several ways consumers can lump debts into a single payment. One is to consolidate all their credit card payments onto one new credit card – which can be a good idea if the card charges little or no interest for a period of time – or utilize an existing credit card's balance transfer feature (especially if it's offering a special promotion on the transaction). Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions. There are also several consolidation options available from the federal government for those with student loans.
BREAKING DOWN 'Debt Consolidation'
Theoretically, any use of one form of financing to pay off other debts is practicing debt consolidation. However, there are specific instruments called debt consolidation loans, offered by creditors as part of a plan to borrowers who have difficulty managing the number or size of their outstanding debts. Creditors are willing to do this for several reasons – one of them being that it maximizes the likelihood of collecting from a debtor.
Advantages of Debt Consolidation Loans
Freeman says that debt consolidation loans are most helpful for those who have multiple debts, owe $10,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty making payments or are unable to negotiate lower interest rates on loans. Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off).
Additional Information for Debt Consolidation
|Age Limit||The applicant should be min 21 years & max. 65 years.|
|Income||Business should be profit making at least for the past 3 years|
|Turnover||$5000 p.a. should be the minimum annual income|
|Co-applicants||Business should be profit making at least for the past 2 years|
|Audited||We accept only audited financials by CA.|
|Cash flow||On the other hand, we denounce with righteous indignation.|
|Type of the Business||Proprietorship, Partnership, Pvt.Ltd. or Public Ltd.|