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Your Guide to Debt Consolidation

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Debt Consolidation in Texas

Thanks for dropping by! In this article, we will cover debt consolidation in the great state of Texas! When you’re drowning in a pool of credit card debt, student loan payments, car loans or medical bills, it’s hard to tread water and keep afloat. You’re probably looking for different ways and alternatives that can provide any type of assistance. As you’ve browsed the web looking for relief, you’ve probably come across terms like consolidating, balancing, transferring, refinancing or settling your debts. We’re here to explain what those terms mean to you and how they can help.

We understand how frustrating it can be as you’ve exhausted all of your options on your own, so let us do the heavy lifting for you. You need to know the truth about debt consolidation whether you are located in Texas or California. The sad reality is that most of these schemes are run by companies who claim to offer hope but really just want a profit. Do not get discouraged because there is hope for you! Let’s examine all of your options so you can get out of the dangerous waters of debt once and for all.

Debt consolidation is the process of combining several debts into one monthly bill on a streamlined payoff plan. When a person consolidates their debt, they get one big loan to cover all their smaller loans. You only need to make one payment instead of several different ones. But, the one loan usually comes with some baggage. This includes: added fees, longer payment periods, and often a higher interest rate.

The process can look different for each person based on their unique circumstances.

Debt Consolidation Loans and How They Work

A debt consolidation loan is a specific type of personal loan that combines high-interest debts and allows for one low-interest monthly payment. Sounds better already, right?

Debt consolidation loans can be used to pay unsecured debts, which may include:

  • Personal loans
  • Credit card bills
  • Medical bills
  • Payday loans

The interest on debt consolidation loans can vary greatly. Unlike credit cards, the interest isn’t compounded. Compound interest is interest that is charged on interest. The interest rate will typically stay the same for the remainder of the loan.

Types of Debt Consolidation Loans

The two most popular types of debt consolidation are secured loans and unsecured loans. Both can be very terrifying as they take advantage of you and even your assets.

What is a secure loan?

A secure loan consolidates all of your debt, but an asset (such as a car or house) must be put up as collateral. Companies that offer secure loans are terrifying because they have the ability to come after your home or car if you miss payments. This is a big NO.

What is an unsecured loan?

An unsecured loan won’t come after your house or car if you miss a payment, but they charge an insanely high interest rate to cover themselves in case there are missed payments.

What are credit card balance transfers?

They are another way that people consolidate their debt. This method is where you transfer all of the debts from your credit cards to one new one. This type of consolidation seems to cause more harm than good. Credit card balance transfers are notorious for transfer fees and high interest rates if you make a late payment.

If you are struggling with credit card debt, getting a new credit card will not solve the problem. This will only create new kinds of problems. Be wary about this method of consolidation.

What is a HELOC?

Another way to consolidate your debt is to use a home equity line of credit (HELOC.) This type of secured loan allows you to borrow cash against the current value of your home, using the equity you’ve built up in your home as collateral.

As mentioned above, secured loans need collateral to operate. Using a HELOC basically gives up a portion of your house and trades it in for more debt so you can pay off your other debts. Needless to say, this method will only put your further behind and not allow you to move forward and pay off your current debts.

What is student loan consolidation?

Lastly, there are student loan consolidations. This method only works for federal student loans. It is a loan that takes all of your federal student loans and puts them into one lump payment. This type of consolidation can work in the right circumstances!

Can Consolidation Loans Damage Your Credit?

Generally speaking, the answer is no. Unless, you forget to make your monthly payments or you make a late payment. Use the loan as it is intended and do not pile on more debt. If you follow all of these tips, your credit should not be hurt.

Debt Consolidation Loans in Texas

To choose the perfect loan, it all depends on factors such as your credit score, income, desired loan amount and repayment term. Always look for the lowest annual percentage rate.

Look for lenders that specialize in debt consolidation in Texas. Make sure they know the laws in your state and do your own research on their reputability and services before jumping in.

Are There Alternatives?

Yes! There are debt relief services that can help strategize how to pay off your debt. These services negotiate with creditors to get the lowest interest rates and fees on your behalf. They do all of the heavy lifting for you. These services are usually performed by certified nonprofit credit counselors.

There are also debt settlement services that negotiate with creditors on your behalf to settle your debt. Beware that debt settlement companies charge higher fees and even higher interest rates for their services. But, this is a great alternative to declaring bankruptcy.

Declaring bankruptcy is a last resort if you cannot pay off your debts. Bankruptcy can damage your credit and could remain on your credit report for up to 10 years. This alternative should not be taken lightly. Some or all of your personal possessions are up for grabs and you will lose access to all of your credit cards.

Though there are many downsides to bankruptcy, sometimes it is a necessary evil. Serious debt, pending foreclosures, and repossessions could warrant bankruptcy.

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