Are You Eligible For Debt Consolidation?

Given the current economic scenario, it is not uncommon to find people struggling with expenses of keeping body and soul together.  Many have lost their jobs or live in constant fear of losing the ones they have. Add to that other problems such as skyrocketing fuel prices, and bankruptcy, and this means that being under debt is no longer the cakewalk it once used to be. In such a situation, it is critical to monitor your financial situation. It is not easy to find help if you are saddled with debt, but many solutions exist to help you free yourself from the embarrassment of having creditors at your doorstep.

One of these options is debt consolidation, which should be your first choice if you have more than two to three loans in your bag already. Debt consolidation refers to simply converting unsecured loans into secure loans, typically by buying stock or stock options, to help to pay off liabilities (i.e. your debts). All you do is take out one single loan in order to satisfy multiple creditors.

Entering into debt consolidation not only helps you to save a great deal of money, it also has the advantage of helping you pay off your debts once and for all. An added perk is that banks and lenders are usually very agreeable to lending money for debt consolidation purposes, helping to convert it from an unsecured loan to a secure one. To make your life easier, you also have the option of applying for debt consolidation online and several lenders offer these services on their websites as well.

Thanks to facilities such as these, it has become increasingly common to pay out multiple loans, such as your car loan, property loan, college loan, etc, all paid out in a single go, even including their credit card loans in this amount. You thus owe only a single company money, which even helps you to remember who to pay and how much to pay.

Any company, business or institution that deals in debt consolidation usually employs a consultant or risk officer who is responsible for calculating and assessing the risk involved, and contacts the companies involved to help to waive off your debts to them and to reduce your liabilities. This may even result in a reduction in the amount you ultimately need to pay.

But, simple as it may sound, it is not easy to qualify for debt consolidation loans. In fact, there many requirements you need to fulfill before you are even allowed to apply for it. First of all, it is necessary that you have a steady income, irrespective of amount. This helps you to get loans at attractive rates, since the risk officer can be assured that you possess the means to pay off your debt. Secondly, you must possess a decent credit rating. Like the previous point, having a great credit rating reflects on your ability to pay off your loans on time and without defaulting on them. This in turn helps you to get attractive rates and softer terms. This also means that someone who does not possess a history of default has a greater chance to be approved for debt consolidation.  Finally, the credit rating of your spouse is also examined. If you fail on the above criteria, the risk officer will examine the income stream of your partner or spouse, and this may help you with your application as well.

Before approving you for debt consolidation, the loan officer will also examine the kind of loans you have incurred, since not all of them can be consolidated.  You should remember that there are three basic kinds of debt: secured, unsecured and government. Secured debt includes debt that is backed by some sort of collateral, such as a mortgage. Unsecured debts are not backed by collateral, and include, for example credit card debt.

Government loans include taxes and student loans. When a loan officer is appraising you for debt consolidation, he or she will first examine the extent of your unsecured debt. They would typically look at credit card debts and unsecured bank loans. They would not consider secured debt or government debt since both are ineligible for debt consolidation. The amount of the unsecured loan would ultimately decide first whether it would be of any advantage for the risk offer to extend a debt consolidation loan to you, and what would be terms and conditions.

Knowing When Debt Consolidation is Not a Good Idea

When it comes to the consumer led recession, South Africa has yet to shake off the weight of this burden since 78% of the ratio of debt to income is still way too high. Plus, if you combine that with the holiday time that furthers the debt, there are now a lot of people out there that are considering debt consolidation. With the current debt situation in this country causing a lot of concern about economic growth. However, before panicking, people need to understand that not all debt is bad and that they should know when debt consolidation is not a good idea.

For instance, if a company or an individual has gotten into debt over something that is going to only increase in value in the future, this is considered good debt and this would be when debt consolidation is not a good idea. Of course this does mean though that you will need to make sure that you do have enough cash flow to pay off this kind of debt.

When a person accumulates debt and they begin to feel like their repayments are beginning to hamper their personal incoming cash and they start feeling like they aren’t going to be able to pay their debts back on time generally leads to panic. This panic leads to uncontrolled tension and stress which then can lead to the inability to make a rash and logical decision. This again would be a good example of when debt consolidation is not a good idea. You need to make sure that you are thinking logically before you make such a decision or not.

This kind of panic then can also lead to a person simply deciding to ignore all of their debts until they are not only out of control but they also now have become burdened with the fact that their credit providers aren’t going to be as willing to work with them. However, you can avoid a situation like this by simply getting in touch with your credit providers and let them know what’s going on. They are far more receptive to accepting smaller payments than not getting anything at all.

As much as the idea of debt consolidation sounds good, you need to understand that it’s not a permanent fix with what’s wrong. It’s important to note that if you have problems making payments on most of the things that you owe on, then this is when debt consolidation is not a good idea either. It’s only going to work for the person that can continue to make monthly payments without experiencing hardships paying and then causing them to miss payments. It does no good to consolidate your debts if you still aren’t going to be able to make your payments on time.

If you own a home and already have a second mortgage on it, you might believe that this could be the time that you might want to go and try to get some debt consolidation done. But, this is also when debt consolidation is not a good idea. The reason is that if you end up failing to keep up with your payments you may even end up actually losing your home because of it.

If you are the type of person that once they see the amount on their credit cards lower or gone, you then feel like it’s safe to go ahead and start using the cards some more, this is when debt consolidation is not a good idea. This type of loan will clear up your credit cards but just because it does this does not mean that you should go out and build up even more debt. If you are unable to control yourself in your spending habits, it’s not a good idea to think that debt consolidation is going to do you any good.

If you don’t have the skills to change your lifestyle of spending on your own this is also when debt consolidation is not a good idea and you are more than likely not a very good candidate for this kind of a resolution. You might just be better off going to someone that offers credit counseling instead. You may need help learning how to control your spending and how to work with creditors as well as how better to manage the cash flow that you have coming into your home.