Debt Reduction Help - Consolidating Your Debt With a Loan

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Author: Carrie Reeder

Article source: http://www.vs.org/. Used with author's permission.

The average household has approximately $9,000 in consumer debt. With high interest rates, and monthly minimums barely covering finance charges, it's no wonder that millions of Americans are getting deeper and deeper into debt. Everyone is likely familiar with an estimated credit card payoff. If you pay the minimum payment, without incurring additional charges, it would take thirty years to payoff the balance. Of course, the ideal is to payoff debt sooner. Thus, millions of people are taking advantage of debt consolidation loans.

Debt consolidation loans do not erase old balances, instead, they create a new loan secured by property. Property used to secure the new loan might include a home or vehicle. The money obtained from the new loan is used to payoff existing creditors. Instead of sending payments to several creditors, debtors submit one payment to pay the balance of the debt consolidation loan. These loans save both time and money.

Obtaining a debt consolidation loan is a lengthy process. On average, the entire process takes three to four weeks. To begin, debtors must calculate their total debt. For the most part, debt consolidation loans include credit cards and small loans. In some cases, debtors also include vehicles. However, there must be sufficient collateral. The next step is to contact different lenders. The goal is to receive the best consolidation loan. Loan types vary in terms of interest rate, length, amount, etc. These factors are determined by the debtor's credit rating, income, and secured property.

Once a debt consolidation loan program is selected, debtors must complete an application. At this time, lenders may also request income verification documents or tax returns. The loan process varies from lender to lender. Some lenders may ask for credit card and loan statements with the application, whereas others may delay until the application is approved. Debt consolidation loans generally reduce monthly debt payments and interest rates.

Individuals unable to receive a debt consolidation loan may consider a debt settlement or debt management company. These companies consolidate debt, and work with lenders to reduce interest rates. Instead of paying off debt in thirty years, most debtors become debt free within five years.

Carrie Reeder is the owner of ABC Loan Guide, an informational website about various types of loans.