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Loan consolidations can be an easy way to get yourself out of a bind, or get some breathing room. How they work is fairly simple. If you have a number of monthly obligations (of course, "number" is sometimes putting it mildly), you can roll them into one single account. The advantages to consolidating are several. Advantage 1: after combining several loans (credit cards, installment loans, for example, but even auto loans and second mortgages are, potentially, good items to throw into the stew pot), you only have one bill to write, versus a horde of bills to write. This is not only convenient, but much less stressful for many people. Advantage 2: by taking a loan consolidation, you can dramatically reduce your monthly expenditures and allow yourself time to build up savings, make ends meet, or get through what you possibly expect to be harder financial times. This is, for nearly everyone, the chief reason for consolidating. There are basically two types of loan consolidations. Equity based and non equity based. Equity based consolidations are the ones that people typically think of when they hear the phrase "loan consolidation". Basically, in the equity area, you're talking about either taking on a second mortgage (which isn't a bad idea if doing so saves you a ton of money each month and, perhaps, also puts some money in your hands for immediate or emergency use) or doing a new first mortgage. Should you tie up your home in any way, shape, or form, for the purpose of consolidating? It depends. If it reduces your obligations and keeps you from drowning in debt, yes. If the purpose of the consolidation is to get a new boat, no. Many individuals have actually been able to do a second mortgage-type consolidation, pay off all their revolving and installment debt, and have qualitatively better lives. Others have been able to turn 30 year mortgages into fifteen year mortgages, pay off all their bills, and still get the emergency cash they were looking for. However, consolidations are not always equity-based. If your credit profile is adequate enough, you may be able to get a small to medium sized consolidation approved on the strength of this. And, in many cases, if done properly, a consolidated loan can save quite a bit per month. When is a consolidation loan not a good idea? The simple answer is that it is never a good idea if taking the loan does not significantly improve your short term and long term financial position. Therefore, you need to consider why you are taking the loan, as well as other factors such as the rate of interest, the repayment terms, the fees that are involved for loan processing, and whether or not the lender is attempting to sell you financial products that you really don't want. For example, you may want to have credit life insurance or credit accident and health insurance on your loan...or you may not. Now, regarding the disabled and the notion of loan consolidations, the problem that many individuals run into is this: by the time they've come to the conclusion that they should have harnessed the power of their home equity or credit record to make their future months less financially rocky, they either have no income or their credit record has taken some nasty hits. And often, both scenarios have unfortunately come to pass. Obviously, qualifying for a loan becomes harder if a loan applicant's credit report shows current, or recent, delinquencies---and is especially difficult (if not impossible) if the lender can see no visible means the borrower has to repay the loan. For this reason, individuals who have filed for benefits really need to plan ahead. And the planning starts by realizing that the system they are trying to navigate can take 2 1/2 years or longer to navigate (from start to finish). Rather than going blindly through the process and allowing bills to become delinquent and good credit to be destroyed, individuals who are in the position of doing so should certainly develop a long term financial plan for surving the process...before they get far into the process and, in the best case scenarios, before they even begin the process. |
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