How to Do Your Own Debt Consolidation

Have you heard the phrase ?debt consolidation?? Many people have heard about it, and have a somewhat general idea of what it means, but most think that it can only be done by a bank or formal lending agency. The fact of the matter is that this is totally untrue. Anyone can consolidate their debt without the help of a bank or credit card company.

How? Well, it all begins with a budget and a formal assessment of all outstanding debts. A traditional consolidation can ?roll? various debts into a single payment or loan in order to help the consumer pay much less interest, get a better grip on their day to day expenses, and save money. What usually occurs is that the borrower or consumer approaches a bank and requests a loan, either a personal loan (smaller amounts) or an equity loan (larger amounts), and the funds are used to pay off debtors.

For example, a single person with a few thousand dollars in credit card debt might be approached by one of their credit card companies and offered the opportunity to use their account for debt consolidation. They extend a ?teaser? interest rate that lasts for six to twelve months and is much lower than any other interest rates available. Now, if that person works hard to eliminate the debt during the teaser period, and succeeds, they will have saved themselves a significant amount of money.

The hazard in such a move is that should that balance not be eliminated by the end of the teaser rate, they will pay the interest on the sum at a new and much higher rate, and this will be retroactive, meaning that it will be applied to the amount originally used for the debt consolidation.

A loan might be used, but whichever variety (large or small) is selected, it usually extends the life of the debt to a fairly significant amount of time. For example, rather than paying off a debt in six to ten months, a loan might see that debt stretched out over a few years.

All of these points illustrate why a debt consolidation done through a payday loan or cash advance is a more efficient approach to the process. It works the same way as a traditional bank loan, meaning the borrower approaches the lender, makes an application, waits for approval and then receives the funds. The difference is that a payday loan or cash advance company will not scrutinize the borrower?s credit score or report, nor will they base their approval on the information in a credit report.

Instead, they look for validation as to the borrower?s employment status, and base their decision on that information. Such a loan is also going to eliminate the chance of extending the life of the loan to a financially damaging point. For instance, most payday loans have a repayment period of roughly six months or less, which means that the borrower will really take control of their credit and debt load and see it reduced or eliminated in less than a year.

Debt consolidation does not have to be done in one single sweeping effort, however, and this too is a good reason to turn to a payday loan rather than a bank loan. By looking at the smaller debts that can be grouped together into a single payment, the individual can do a step by step, or bit by bit approach to eliminating their debt. This can keep interest fees to a minimum while also yielding the best results possible.

There are some limitations to the amounts available in payday loans and cash advances, which usually provide a maximum amount of $1,500 to $2,000 per loan. If more is required, a borrower can always consider their assets and use them as collateral for larger, secured loans.

For instance, many people perform a ?do it yourself? debt consolidation by taking on a home equity loan. Now, that is fine, but the problems associated with such a choice are that the application process is lengthy and very involved, and a bank will always base their decision on the contents of the credit report. A good alternative to such a choice is a car title loan which uses the value of the vehicle as the collateral of a loan.

This variety of loan would see around fifty percent of the vehicle?s value available for borrowing and is really a great way to do some debt consolidation without overextending the life of the loan. The terms of a payday loan or a car title loan are quite flexible and will always accommodate the needs of the borrower. These are among the few borrowing options that do not threaten the credit score should the borrower request an extension or adjustment to the terms.