Debt consolidation that is not a loan

Most people who are struggling with debt repayments start looking around for a lender that will help them consolidate their numerous expensive debts into a single cheaper loan. When they start looking on the internet there are many businesses offering debt consolidation assistance to bad credit borrowers, Consolidation Deal one of them.

A word of caution…most of these are not offering a new loan

What is on offer through most of these businesses is a debt agreement. Your unsecured debts are negotiated with your credit providers to a affordable level. Your set repayments will be lower and no interest will be charged on this unsecured debt.

It really sounds very good. Who does not wish to reduce their debt repayments and walk away from debt obligations paying less than is due, in full settlement of these debts. As always there is a catch. That catch is the impact of a debt agreement on your credit history and future ability to qualify for finance.

Implications of a debt agreement

Although a debt agreement can make you debt free sooner, it can also restrict your ability to qualify for finance in the future. While in an undischarged debt agreement you will not be able to qualify for any other loans (most agreements last for 5 years).

Even after your agreement is discharged, qualifying for unsecured finance is difficult. While home loan lenders will want to see deposits of up to 20% before approving your mortgage application. For this reason many people who seek help with unaffordable debts are reluctant to enter a debt agreement.

What if you want a consolidation loan?

Unfortunately borrowers who have a history of bad credit and would like to qualify for an unsecured debt consolidation loan, will find it difficult locating a lender that is able to offer such a loan.

The only options available to bad credit borrowers are loans under $3,000 for a period of a few weeks or several months. However true personal loans for 3 – 7 years are not available.

You may be able to qualify for a secured loan offering the security of a motor vehicle or real-estate, however this also has a number of provisos.

Only vehicles of a certainĀ  value, make, model and age can be accepted to secure a consolidation loan. Different lenders have their own criteria for acceptable vehicles.

Property owners and property investors need to have sufficient equity in their property to be able to secure additional debt consolidation against it. Generally speaking the overall amount of debts when added to existing mortgage needs to be under 80% of the value of the security property.

Lenders will also look at your income and ability to afford the larger mortgage after debts to be consolidated are added into the mortgage.

What if you can not qualify for a loan?

Those who do not wish to enter a debt agreement but are unable to qualify for a consolidation loan need to investigate other debt reduction strategies. These may include repayment assistance or a temporary reduction in debt repayments due to financial hardship. Some can benefit from establishing a budget and sticking to it in order to slowly pay down the accumulated debt.

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