Loan Consolidation - Debt Consolidation Information

Hi-ho, hi-ho it’s into debt we go...

You’re in debt up to your eyeballs and you need to re-vamp your financial situation and do it right now! You are not alone. The purpose of this article is to explore the road to debt, the reasons a person would want to consolidate their loans and what different types of loans can be consolidated (those that cannot), and the possible disadvantages of consolidating of your debts.
Let’s use this scenario. You’ve just been approved for a school loan! What kind of debt are you likely to incur? The average student loan in 2002 was over $16,000. That was for a mere undergraduate. The figures for 2005 are not out yet but we can be sure that figure has not gone down! Some universities and private schools tote a whopping $40,000 a year. Let’s take the high road. Four years later you have now graduated and are $160,000 in debt. (You say, why not get a grant? I agree but that’s not possible for everyone.) So you get a job and must buy a car. The average price of a new car today is around $25,000. New car sales in July 0f 2005 were 20.8 million. The new car loans have been averaging 48 months but it not uncommon for a loan to not mature until 60 months. Now you hear wedding bells, fall in love and get married. Your spouse needs a car (another $25,000) and you both need a home. The average home costs approximately $150,000. Home mortgages went up 13.4% in the latest quarter. A fixed mortgage rate in 2004 was 5.82%. This year the average was 5.98 an increase of over 10%.

Let’s see, you now have incurred a combined debt of $310,000. (At this point, how do you sleep at night?)

Let’s continue with our little scenario. You have now become an average American who you must have credit cards for all those incidentals. The average American has 19 credit cards! The national credit card debt in 2002 was $750.9 billion. There are different sources stating that the average consumer averages $8,000 on credit cards while others state that the average is really only about $2,000. Averages can sometimes be misleading but the bottom line is that a huge amount of debt can be tied up in credit cards. The monster behind being able to buy now and pay later is the interest on the credit cards can run anywhere from 24 to 30 percent! They (whoever ‘they’ are) say the average American family will spend $1,650 on Christmas this year. Virtually everyone takes plastic payment these days, from the dentist to the local florist, the grocery store to the gas station. The road to debt is easy to go down, slippery if you will and extremely hard to climb back up to financial freedom.

We know that debt can arise from many factors besides our little story. Real life situations like loosing a job, getting ill and incurring large medical bills to name a couple can be truly devastating when you have financial obligations just from every day life. One does not have to be overindulgent or extra materialistic to be in trouble over night!

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, which is most commonly a house. In this case a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset in order to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower. One needs to be careful in re-financing or getting a second mortgage because it could still lead to financial hardship. Resources