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Getting Ready to FIle Your Federal Tax Return
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Debt Consolidation Provides Relief from Financial Stress

When debt becomes overwhelming, an individual’s entire life is affected. Wise debt consolidation can provide a viable solution.

The Agony of Financial Stress

When an individual spirals into a position of excessive debt, the emotional and physical results can be significant. Stress and anxiety can mean loss of productivity at work, insomnia and strained relationships with family members and friends. A large number of physical ailments, including high blood pressure, heart problems, ulcers and strokes are often directly related to stress and anxiety. When debt becomes overwhelming, it might be wise to consider debt consolidation.

What is a Debt Consolidation Loan?

In its simplest form, debt consolidation is the securing of one large loan to pay off most or all of one’s existing debt. Usually, this debt includes credit cards and other revolving-payment loans but not generally one’s mortgage. The idea is to get one monthly payment, which is lower than the combined payments of the debt, thus lowering monthly expenses and reducing the stress on the debtor. To consolidate debt is to be debt free.

Securing a Debt Consolidation Loan

If one’s credit score is still good to excellent, because no payments on debts have been missed or are late, an individual may be able to secure a debt consolidation loan himself. This loan may be in the form of a personal bank loan or a home equity loan, if there is sufficient equity in a home. Another option is to re-finance a mortgage entirely, taking out enough cash to pay off the debt. Because the debt is secured by the home, interest rates can be more attractive than a personal loan.

Unfortunately, a number of individuals with excessive debt either do not own a home or do not have enough equity in a home to consolidate in this manner. Also, overwhelming debt usually means that there are late or missed payments. In this case, it may be wise to consult a debt consolidation professional. Do some research and find one that is ethical and has references. These individuals will perform two initial services – negotiation with creditors for a lower total payoff amount and assistance in securing the consolidation loan. There are fees involved in these services and the loan interest rate can be high, so the wise consumer checks them carefully. Once the loan has been secured, a good consolidator will provide additional counseling in the areas of debt and budgeting so that the debtor avoids a recurrence of the situation.

A Word of Caution

If debt consolidation is used, there may be a short-term effect on one’s credit score, especially if lower payoff amounts have been negotiated. Also, the debtor must develop a strict budget, canceling or cutting up credit cards and refraining from incurring any additional debt until the consolidation loan is completely paid. If this is done, a debtor has a fresh start and can begin to build his credit again responsibly.

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