Debt Consolidation
Traditionally debt consolidation meant that you would take out one big loan to replace or “consolidate” two or more smaller loans into one monthly payment. For example, if you owed $25,000 in credit card debt spread out of 5 different credit cards, you might be able to take out one loan to pay off all of the credit card companies and then instead of making 5 payments each month, you would only make one payment.
In recent years many consumers were able to use the equity in their house as collateral for this type of loan. For example, if you had $100,000 in home equity, you might refinance the house, take cash out and use that cash to pay off credit card debt. Or, you might take out a home equity line of credit and use that line of credit to pay off the credit cards and consolidate that debt. The advantages of this type of debt consolidation were many including: lower interest rates, tax deductability and a longer repayment term - all of which typically meant a much lower monthly payment.
Since mid 2007, however, many areas of the country have been experiencing a housing slump and declining property values. As a result, using the home’s equity as the source of the traditional debt consolidation loan have dried up in many areas.
With fewer options available, many overburdened consumers are now turning to debt settlement as a more viable alternative to debt consolidation.
With debt settlement, it may be possible to have a debt settlement consultant negotiate directly with your credit card companies to reduce your principal balance and establish a monthly payment plan that is not only affordable, but will leave you debt free in as little as 30 months.