Debt Consolidation Is Not Always The Right Solution

Executive Summary By Jessica Peterson


Not all debt can be consolidated and given that there are different consolidation programs you should check if the

one you chose or the one that the agent chose for you is really to your advantage.

There are many reasons why debt consolidation may not be the right solution for you. Debt consolidation cannot solve

debt problems for all kind of debts. Debt consolidation may be too expensive if debt has already affected your

credit and you don’t have collateral. And certain debt consolidation programs may be nothing but scams. Thus, you

need to be well aware of what you are getting into.


Debt Not To Be Consolidated


For starters, you should understand than not all debt is suitable to be consolidated. The reasons for this are

varied. Most subsidized loans already carry very low interest rates and thus, it makes no sense to consolidate those

loans by using a more expensive loan. This is always true, unless of course what you need is to reduce the monthly

payments by extending the loan repayment period.

There are many subsidized loans. Government loans for students, private loans for students, government loans for

first time home buyers, government loans for starting businesses, government loans for research disciplines, etc.

are just a few examples of subsidized loans that are not suitable for consolidation.

There are loans that being secured are not suitable for consolidation. Though refinancing can be a form of

consolidation if other loans and debt are repaid with the exceeding cash obtained from a cash-out refinance loan,

truth is that very seldom a home loan or home equity loan is included in a debt consolidation program.


Debt Suitable For Consolidation


Generally speaking only debt which is unsecured in nature and secured debt taken when your credit score was low (bad

credit debt) is suitable for debt consolidation. The latter will be suitable only if your credit score has improved

or if you can provide better collateral and thus obtain a more competitive interest rate.

Examples of unsecured debt are: unsecured personal loans and personal lines of credit, credit card debt, store card

debt, pay day loans, cash advance loans, certain student debt, bank account overdraw agreements, bank pre-approved

personal loans. All of these can be consolidated into a single loan or the terms negotiated by a debt consolidation

agent.

Debt consolidation in the form of a loan carries the advantage of obtaining a single and lower monthly payment that

will simplify your budget while you work on your expenses. Debt consolidation in the form of negotiation is also an

excellent tool that can provide a solution by reducing rates, eliminating debt generated by interests or extending

the repayment programs so as to make debt more affordable.

And finally, both methods can be combined offering an excellent way of eliminating debt, managing finances and

improving credit score in the same debt consolidation program.