Debt Consolidation
Debt consolidation is a debt repayment program most commonly used for credit card debt and other unsecured loans. Credit card debt often carries a much higher interest rate than even an unsecured loan from a bank. Debt consolidation loans involve transferring unsecured high-interest credit card debt into a low interest secured loan, typically using your home as collateral.
Unsecured high interest rate credit card debt presents less risk to the consumer if the debt is not paid on time. Secured debt presents a greater risk to the consumer. When the debt is not paid on time, the lender is then permitted to begin foreclosure proceedings on your home or take possession of any collateral you originally submitted in securing the new loan.
Companies can take advantage of consumers who have high interest debt balances, using the theoretical advantage that debt consolidation offers the consumer to their benefit by charging high fees, sometimes reaching the state maximum for mortgage fees. This forces borrowers to pay out of pocket costs for fees that are well above what lenders may be charging other borrowers. This is a form of predatory lending.
Debt consolidation may benefit the consumer in various ways: a lower interest rate, lower total repayments and the convenience of one monthly payment. Debt consolidation companies negotiate the repayment terms, interest rates and fees for the existing accounts. A single monthly payment is then made to the debt consolidation company.
