Debt consolidation is a form of relief which is acquired by a person when the debts have exceeded beyond the management ability of a person. Debt consolidation simply refers to the combination of all the debts so that the payments are processed through single disbursal of money once a month. If any payments have to be made to multiple organizations, then the option of consolidation will unquestionably make the process easier to bear. Howler one should know those fraudulent activities while paying the debt by making defaults voluntarily is against the law of debt relief. Hence it is important to be clear about the financial situation and honestly seek debt consolidation as per the laws governing this program in the country where dent consolidation is sought.
The different kinds of sources from where money can be borrowed
Money can be loaded from multiple sources, but for ease of understanding the lending, resources are categorized into two specific groups. These categories are delineated below:
- Secured borrowing
In this category, there is the need for making a specific loan agreement. The agreement which is drafted includes the pledging of a property by the borrower. This asset can be regarded as the guarantee which is present for the benefit of the lender. The benefit of the lender can be understood because if the borrower defaults to pay the loan in the given time, then the lender will be able to take ownership of the property that has been stated as the guarantee in the loan agreement. But that does not mean that the borrower fails to pay one single installment the property will be confiscated. There is a time given for solving the due, but if the borrower is completely insolvent, then the guarantee in the loan document is seized and auctioned by the lender for acquiring the dues of the borrower. The advantage which a borrower gets by availing this kind of lending tool is that the rate of interest which is levied on the loaned sum is quite lower compared to other lending options.
- Unsecured borrowing
In case of an unsecured borrowing, the lender doesn’t have the advantage of keeping an asset in the loan document. Usually, the borrower in this method of loan acquisition doesn’t need to worry about the loss of property or asset. This is the most frequent form of borrowing which is used by most individuals. The well-known source of unsecured credit is the loan provided by credit agencies by the use of credit cards. This makes the process of acquiring credit even easier for a person. There is no need for application because swiping the credit card will provide the person with a loaned amount. Here the lender or lending agency might not benefit much as they have to depend on the repayment of the borrower but the interest rate is kept quite high which means that the borrower has to pay a higher sum of money compared to what he/she has borrowed in case of such loans.
One can regarding the different forms of credit that can cause debts and also the methods present for dealing with those unpaid credit accounts.
The categorical organization of nonpaid loans for the sake of reducing debts
The cause of debts can be many, but the one action that leads to the development of debts is the nonpayment of the loans. Once a default occurs the borrowed amount becomes larger due to the addition of the penalty. If defaults become consecutive, then the payment becomes huge so much so that after a certain period of time it might be impossible for the person to pay the debt. Therefore, if loans have been taken from several sources, then it is important to chalk out a plan for paying the debts accordingly. A well-known debt solution plan is discussed below:
Lining up all the sources from where money has been borrowed
This is extremely necessary for people who have taken loans from many places. Until all the credit companies are noted down in one place, it is impossible to focus on making a repayment plan.
Separation of loans from debts
The next important task is to separate the borrowings depending on the criteria of debt accounts and non-debt accounts. If all the loans have turned into debts, then only one category will be present, but if there are both loans and debts, then two columns should be made one for the debts and the other for the loans where defaults have not yet occurred.
Calculating the least amount of payment for all the borrowed sources and adding it up to see the total amount of dues which have to be cleared monthly
The borrowed money has to be repaid, but all the loans might not have a similar minimum amount. Hence all the different minimum sums have to be calculated by looking at the rate of interest. The total calculation will give the amount which has to be paid monthly for slowly solving al the dues.
Taking stock of the finances left
The amount of money that is left should be calculated, and if there is a source of monthly income then that should also be considered.
Looking at the possibility for making the minimum payment
The borrower should objectively determine if it is at all feasible to make the monthly payment of the different debt sources. A clear perspective should be present for making the decision otherwise confusion is bound to arise and will confound the debtor further.
Choosing relief programs for resolving debts
If the debtor is sure that it is not possible to single-handedly honor all the debt obligations, then it is wise to seek the help of a debt relief institute that will have suitable programs for the debtor.
Hence, keeping calm in the turmoil of debts can be the only way to save oneself from spiraling down into a pit of debts.
John Bell has been writing articles on Social Media, skilled business consultant and Financial advisor for the last few years. In this post, he has written about the benefits of Social Media Marketing, Business, Finance as well as the features related to the same.