Consolidation Loan Debt Reduction

In the simplest case, we are talking about someone with plenty of built up equity in a house, and they simply want to roll their high interest credit card debt into a new second mortgage. This results in a lower overall interest rate, usually a lower total monthly payment, and a big simplification in life. That, is truly the only kind of consolidation loan debt reduction that exists.

It would be great if there was a loan company out there that would let you walk up with a fist full of credit cards, and walk away with just one loan with a reasonable interest rate. Unfortunately, unless you have some equity (usually in a house that you own), a lender simply won't be willing to give you this kind of a loan. Credit card companies are willing to take on the risk of a relatively small amount of money for a higher interest rate. Lenders are not willing to take on the risk of a larger amount (the total of all your smaller credit cards) for a lower interest rate. They would go out of business if they did that. The security of being able to take your house away and sell it to get their money back makes the second mortgage route feasible and common when the equity is there as a backup.

When such a second mortgage solution is not possible (because the person does not own a house or because the house is not worth more than they currently owe in mortgages), a solution has to move over into the realm of credit counseling and or debt settlement negotiation. Be careful though... this method of consolidation loan debt reduction is not really a loan, but rather various means of working with the credit card companies to arrange a solution to your predicament.

Unfortunately, there is a lot of mis-information and many unethical companies "selling" the idea that you can just walk away from the money you owe without doing major damage to your credit. The first thing you need to do if you are in this predicament is to get well educated on your choices and the possible solutions. This area of "consolidation loan debt reduction" is crowded with opportunities for mistakes that can land you in worse shape that you started out in.

Usually there is one major defining point that will determine which of two paths is likely to be open to you. If the basis of your problem is simply that you spent too much and it got away from you, credit counseling is the way to go. Once you have found one of the "good guys" in this shark infested pool, they can help you to set up a payment plan that will get you out of debt over the course of 5 years or less with little or no damage to your credit.

If, on the other hand, your situation stems from a reversal of fortune in which you no longer have the income needed to make payments (loss of job, illness, etc.) then the credit counseling avenue is basically closed to you. At that point you need advice on the cleanest way to get out from under all of the collection agencies etc. No matter what you do at this point, you are likely to be completely unable to get any kind of credit for 7 years or more. The plan at that point is to find the cleanest way to start over. Here again, getting educated on the options is the best path to a good solution. Bankruptcy is not necessarily the best choice.

One of the best resources you will find anywhere for a simple no-nonsense explanation of this whole topic can be found at about.com in their Understanding Debt Consolidation Programs.