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Author:
Kate Ross

Before contacting a debt consolidation agency you need to make sure that by consolidating your debt you’ll be improving your financial situation. Otherwise you’ll need to resort to other forms of credit and debt repair. Since debt consolidation is mainly based on debt negotiation, you have to make sure that the type of debt you have is suitable for this method of debt reduction.

Pre-payable Debt and Negotiable Debt

In order to be suitable for consolidation debt has to be susceptible of being prepaid and negotiated. This is an important issue because if your debt does not have either of these characteristics, you won’t be able to obtain any benefit from a debt consolidation program. Let’s analyze these factors separately first.

When you prepay your debt, you are modifying the repayment schedule by paying part or the full amount of the money owed in advance. According to the contract, debt can assume three forms when it comes to prepaying: Prepaying can be authorized either explicitly or implicitly (if the contract says nothing about the issue), prepaying can be authorized but penalized with a prepaying penalty fee or prepaying can be forbidden. If prepaying your debt is forbidden the only form of debt consolidation available is negotiation and resorting to a debt consolidation loan is not feasible. If there are penalty fees, you need to ponder the fees in order to see if consolidation would be to your advantage or not (you may end up paying even more).

By negotiating your debt, you agree with your creditors new terms for repaying your loans and other forms of debt. Not all debts are negotiable and non-negotiable debt cannot be consolidated unless you can repay the debt in full (by means of a debt consolidation loan). Generally speaking, secure debt is non negotiable. This is due to the fact that since secured debt provides the lender with a real estate guarantee, he can always recover his money through legal means knowing that his money is protected with the property used as collateral.

Consequences of Both Characteristics

If your debt is mainly composed of either of these types of debt or worst, a combination of both, chances are that consolidating your debt will became undoable. Non-negotiable debt can be consolidated via a debt consolidation loan (which implies repaying your debt and taking new debt under different terms) if debt is pre-payable. Non pre-payable debt can only be consolidated through debt negotiation as long as it negotiable.

Any non-negotiable and non pre-payable debt becomes an inevitable obstacle against debt consolidation. If a high proportion of your debt falls into this category you’ll need to consider other options because debt consolidation is not for you. Otherwise, you can both consolidate through debt negotiation or debt consolidation loans and you will be able to reduce your debt and monthly payments.

Kate Ross is a professional consultant with fifteen years in the financial field. She helps people in the process of securing personal loans, mortgage, refinance or consolidation loans and prevents consumers from falling into financial scams. Smart tips and interesting articles on this subject and other financial related topics can be found at her website: http://www.speedybadcreditloans.com

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A Quick Note From The Publisher... If you like the article above, you may be interested in the following article which is also related to Debt Consolidation... Debt Consolidation - What are the Dangers? Although debt consolidations are extremely useful, and have helped millions of people payoff their creditors, applicants should fully understand how these loans work. Debt consolidation involves moving debts. By doing so, you are able to payoff balances sooner, and save money in the process. Nonetheless, these loans present certain dangers. Advantages of a Debt Consolidation Loan Debt consolidation loans are beneficial for several reasons. Obviously, these loans offer a realistic solution to debt troubles. Without debt consolidation, many people would have been forced to file bankruptcy. In addition, debt consolidation has helped people to restore their credit rating. Too much debt and missed payments has a damaging effect on credit. Through a consolidation, debts are reduced or completely paid. Dangers of Debt Consolidation While practical, one cannot afford to ignore potential dangers. Because many people lack self-control when it comes to spending habits, debt becomes a never-ending vicious cycle. In other words, once debts are paid, some have the tendency to repeat past mistakes, and accumulate additional debts. If new debt is accumulated, those who obtain a debt consolidation loan will essentially double their monthly obligations. Debt consolidation does not erase debts. Rather, all debts are combined or lumped into one loan. Hence, if funds are acquired from a debt consolidation, and used to payoff credit cards, the intent is not to make room for new purchases. If homeowners choose to consolidate debts through a home equity loan, this also poses an additional danger. This option essentially puts your home on the line. Home equity loans are collateral loans, in which the loan is secured by a home's equity. While a home equity loan is not considered a...