There are different ways that one could look at consolidating ones debts. Some of he best known alternatives are:
Unsecured Personal Loan for Debt Consolidation
When most people think about debt consolidation they think about an unsecured personal loan that will allow them to bring together all their other loans in order to make it easier to manage these as well as reduce ongoing repayments.
Unfortunately the only people who are able to qualify for these loans are people who do not really need them. That is, if you are currently having no trouble meeting all your debts/obligations, you are simply looking to save money - you can approach your bank or any other traditional lending institution such as a credit union or a finance company and look to consolidate your school fees, credit card balances and store cards into a single personal loan. To qualify for this type of debt consolidation you must have a clean credit history, stable employment and sufficient income to service the new loan.
Most borrowers who are looking for debt consolidation do so because they are struggling with existing repayments. Such borrowers are unlikely to qualify for an unsecured personal loan for debt consolidation.
Secured Personal Loan for Debt Consolidation
This is a suitable alternative for someone who has a paid out car or a truck or a boat and would like to use the equity in these assets in order to take out a secured personal loan for debt consolidation. This type of loan can be approved even if the borrower's financials are not quite up to date (low doc application) or the borrower has some history of bad credit.
It is important to understand that if your car is worth $10,000 you may only qualify for a loan of $5,000 for example. Therefore it is no good looking for a secured personal loan where you need to borrow the full value of your security asset or beyond its full value.
Secured loans for clean credit full doc borrowers can be cheaper than unsecured loans. However if you are after a bad credit low doc car loan - you may find that the rate is too high to consider debt consolidation. After all your repayments need to be lower after consolidation than before.
Mortgage Refinance For Debt Consolidation
This is a great debt consolidation alternative for anyone who is a home owner with equity. This is because home loans offer some of the lowest finance rates available on the market and your existing unsecured debts can be paid out over a 20 year period - offering very low incremental payments over your existing mortgage.
To qualify for this type of debt consolidation you must have plenty of equity in your property as the overall mortgage at the end of consolidation should remain under 80% of the property value. It is possible to consolidate slightly over 80%, however mortgage insurance needs to be consider as an additional cost for such arrangements.
Debt Agreement for Debt Consolidation
All too often the borrower who looks for debt consolidation is doing so because they simply can not afford to make their current repayments on all existing debts. These borrowers may already have some defaults, credit cards over the limit etc.
If you are unable to meet existing debt obligations you are unlikely to qualify for a new loan - as you are by all definitions already insolvent. Such borrowers may need to consider a debt agreement as an alternative to consolidating their debts.
It is worth to note that debt agreements only exist for unsecured debts. If you are behind in your car loan repayments you will not find another lender to refinance you loan and unless you borrow privately and catch up on repayments your vehicle may be repossessed.
If you only have $2,000 - $3,000 in unsecured debts you will not find that debt agreement is a suitable solution as most debt negotiators look for you to have at least $8,000 in unsecured debts before they can take you on.
With a debt agreement your debts re negotiated down with your creditors to a level that you can comfortably meet and providing your creditors agree to a reduced repayment plan, you will sign the debt agreement and at the end of the agreement period (3-5 years generally) you will come out completely debt free.
Debt agreements will have a detrimental affect on your credit history and should only be considered by people who are unable to qualify for any other form of debt consolidation.