nonprofit debt consolidation

Consolidation Loan Hints- Nonprofit Debt Consolidation

What is debt consolidation? Debt consolidation is the process of obtaining one loan to pay off other non-secured consumer loans and credit cards.

What is the purpose of debt consolidation? The object is to obtain a low interest rate loan with low monthly payments, without adversely affecting your credit rating or risking other assets. As an added benefit, the maker of the consolidation loan should take over all contact with your creditors, which should relieve you of any further collection attempts from the creditors that were part of the consolidation.

What is a secured loan? Any loan that has a provision for the return or collection of an asset when payments are not made. Secured loans are usually made for cars and houses. Secured loans on houses are either first or second mortgages. Secured assets usually have special rules applied to them in bankruptcy preceding and usually cannot be taken from the consumer to pay off other non-secured debts.

What is a consumer loan? A loan resulting from a shopper's purchase that isn't secured to an asset. Consumer loans typically result from credit card purchases and balance transfers.

When should I use a debt consolidation loan? A debt consolidation loan should be used when your credit card payments become unmanageable by normal budgeting methods. Debt consolidation loans are one of many solutions that can temporarily reduce debts. To prevent further debt from accumulating you will need to change your buying habits.

What do debt consolidation loans cost? Their are many institutions that offer free consultation and claim to be nonprofit debt consolidation agencies or debt consolidation program. Typically, up front fees are not charged, but you should always ask what fees will apply to the loan before you sign it. True nonprofit debt consolidation agencies will want you to agree to a budget, and may make you agree to let them manage your money.

What should you ask before getting a debt consolidation loan?

1. What fees apply to the loan? Small service fees are typical, large commissions should not be paid. Be wary of any debt consolidation company that claims it can reduce your debt, and avoid any company that wants to charge you a large commission to reduce your debt.
   
2. What is the interest rate on the loan? This should be much less than your credit card rates. A high interest rate will prevent you from paying the consolidation loan off. Try to get a fixed interest rate so your payments do not change.
   
3. What are the payments on the loan? The payment should be lower than the amount you were paying before the consolidation.
   
4. Will the loan adversely affect my credit rating? Make sure the loan procedures are explained to you before you sign the loan. Avoid lenders that are not clear on this issue. Obviously, companies that claim they can reduce your debts have a greater chance of causing harm to your credit rating.

When shouldn't I use a debt consolidation loan? The object of getting a debt consolidation loan is to ultimately improve your financial situation. Loans that require you to pay high fees, or promise large debt reductions are extremely risky and should be avoided. Never pledge secured assets (your car or house) to obtain a debt consolidation or other type of consumer loan.