The term Debt Consolidation can mean different solutions to different people. It all depends on the you present financial condition and you goals. With what you state in your question, you are probably referring to a debt consolidation loan. Let me first explain to you the variations (if you might call it that) of debt consolidation.
Debt consolidation comes in many forms, so it is important you reflect on what your needs and concerns and financial situation are before deciding which route you would like to take.
The four primary concerns for most consumers are:
- Monthly payment
- Time to debt freedom
- Total cost
- The credit rating impact of the consolidation program.
Debt Consolidation Loan
Many people think first of a debt consolidation loan when seeking online debt consolidation. This option typically means a second home loan (or home equity line of credit) or refinancing your primary mortgage. In a debt consolidation loan, you exchange one loan for another. The most frequent form is taking out a mortgage loan, which carries a lower interest rate and is tax deductible, to pay off high interest rate credit card debt. It is important to be aware that shifting unsecured debt to secured debt can create a volatile situation, if there is ever a chance that you cannot afford the new mortgage payment you are now putting yourself at risk of foreclosure! In the case of a debt consolidation loan, most mortgages are 30 year loan, which means that the total cost and the time to debt freedom could be very high? but the monthly payment will be lower than other options and there is no credit rating impact.
Credit counseling, or signing up for a debt management plan, is a very common form of online debt consolidation. There are many companies offering online credit counseling, which is essentially a way to make one payment directly to the credit counseling agency, which then distributes that payment to your creditors. Most times, a credit counseling agency will be able to lower your monthly payments by getting interest rate concessions from your lenders or creditors. It is important to understand that in a credit counseling program, you are still repaying 100% of your debts — but with lower monthly payments. On average, most online credit counseling programs take around five years. While most credit counseling programs do not impact your FICO score, being enrolled in a credit counseling debt management plan DOES show up on your credit report. Unfortunately, many lenders look at enrollment in credit counseling akin to filing for Chapter 13 bankruptcy or using a third party to re-organize your debts.
Debt settlement, also called debt negotiation, is a form of online debt consolidation that cuts your total debt, sometimes over 50%, with lower monthly payments. Debt settlement programs typically run around three years. It is important to keep in mind, however, that during the life of your debt settlement program, you are NOT paying your creditors. This means that a debt settlement solution of online debt consolidation will negatively impact your credit rating. Your credit rating will not be good, at a minimum, for the term of your debt settlement program. However, debt settlement is usually the fastest and cheapest way to debt freedom, with a low monthly payment, while avoiding Chapter 7 Bankruptcy. The trade-off here is a negative credit rating versus saving money.
Your Question: Did Debt Consolidation Hurt My Chances to Refinance?
Depending on what kind of debt consolidation you did, you may or may not have problems refinancing. If you entered a debt settlement program, your credit is likely not good enough to qualify for a refinance loan. If you enrolled in a credit counseling program, while your credit score may not have dropped, as long as you're in the program, you will have trouble qualifying for a loan. If you took out a debt consolidation loan, you may have improved your chances for qualifying, if your consolidation loan lowered your debt-to-income ratio.
Bills.com makes it easy for you to apply, by following this link: Debt Help Quote.
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