debt consolidation what is it?

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31st Oct 2009 by Michael Haltman

Over the past many years, many Americans have gotten used to living beyond their means whether through the refinancing of homes that continued to increase in value, or through home equity loans offered by banks to take advantage of the equity in the home provided by that increase. This led to an unprecedented consumer spending spree, much of it financed through credit. The consumer felt confident in housing, and therefore that the availability of funds to pay the bills would always be therel.

Credit card companies and retailers offering credit to buy goods were eager to bring on new clients, often at initially low interest rates that would rise substantially at a given point in time or if a payment were missed. Many people got numerous cards and bought goods at many different stores. Payments needed to be paid monthly to many different companies, interest rates on the debt varied from initially low to high, and keeping track of it all could become quite a burden.

As a result, the concept of debt consolidation has become very popular. This is the process by which a consumer will apply for a new card offering a credit line at a reasonable rate, or use an existing card with a credit line that continues to offer a reasonable interest rate. They will then borrow the money from that card to completely pay off all, or as many of the other credit cards and store credit balances as possible. The result will be having only one payment a month to make. The money borrowed from that card to pay off the other debt will hopefully also be at a more reasonable interest rate than some of the rates currently being charged by some of the existing ones.

The bottom line is that if there is availability of credit on a card sufficient to accomplish this or a new card can be acquired at a good interest rate, any hassle involved in debt consolidation is well worth it. One payment which is hopefully a lower number than the combined payments of all of the existing debt due to what is an effective interest rate reduced from the previous combined rate.

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30th Oct 2009 In Finance 1 Answers | 593 Views
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