How Debt Consolidation Loan Programs Work


Any consumer with sizable debt loads that have resulted from different sources (mortgages, credit lines, credit cards, student loans, and so many others) should constantly be searching for some solution to their debt problems. Of course, almost always, the most favorable alternative would simply be to re-pay all moneys owed to each lender, but most borrowers do not have this capacity. By the time debts reach this sort of ruinous situation, most debtors have long ago emptied their savings accounts, sold their assets, and (to be frank) never had the income to deal with significant debt loads in the first place. For these borrowers, they should look into loans taken out for debt consolidation as a more costly but still helpful method of debt management.Unfortunately, debt consolidation is not the same thing as repairing a borrower’s credit. Just because debts have been consolidated does not mean they have been done away with and, as long as the debts remain, there will still be problems with credit reports that credit analysts should quite easily be able to notice. Part of this widely held misconception lies with the debt consolidation companies themselves. The television commercials and newspaper ads help create the notion that debt consolidation equals debt elimination and that credit repair should soon follow.Any thinking consumer should realize, though, that such promises make no sense – there’s no way to get through the mine field of debt so easily and all such advertisements only add to the confusion. Debt consolidation was originally intended to minimize interest for borrowers and, by combining all payments into one monthly obligation, allow greater flexibility for each debtor. In other articles, we’ve tried to explain in detail just how this is possible. To a certain degree, the relationship between debt consolidation and credit repair should be easy to understand. Whenever a number of high interest credit cards (twenty five percent, say) are able to be consolidated into a single and relatively low interest loan, then not only will the amount of interest paid every month drop substantially but the eventual money to be repaid (considering compound interest) will be far less. Even if there’s an initial cost to debt consolidation loans, such dramatic savings will have an immediate impact in the borrower’s monthly expenses and could save tens of thousands of dollars, depending on the loan, by the time that the debts are fully repaid. Debt consolidation and credit repair, whenever they can be undertaken by a borrower, should be understood as a necessary stopgap – presuming sudden full repayment impossible – and the advantages of lower interest rates could save more than a few dollars each month. Taking into account the effects of compound interest, debt consolidation and the inevitable credit repaid could save a family’s financial destiny.