Okay, so you know what a debt consolidation loan is and how it works and what it can do for you, but do you know what a debt consolidation loan is not?
It’s good to know as you will have an even better idea of what a debt consolidation loan entails.
1) A Debt Consolidation loan cannot be used to Catch Up on Arrears Payments
A Debt consolidation loan can’t be done if you are in arrears on accounts, as the bank will look at your profile and according to that they will decline it.
You need to apply for a debt consolidation loan before you fall into arrears on the mortgage or other accounts, only then will are you able to able to consolidate because your mortgage originator will be able to do a full motivation on your behalf.
What does a motivation entail? A motivation needs to be done if you are applying for more debt than you can currently afford, but it’s actually for debt consolidation.
A reputable mortgage originator would show your current situation as well as the future situation if the debt can be consolidated. You would also need to provide the latest statements or settlement letters of the debt to be consolidated.
2) A Debt Consolidation loan is not Debt Review or Administration
A Debt consolidation loan should not be confused with debt review or administration because firstly, as mentioned above, you will not be in trouble already, and secondly your debt will not be paid in monthly installments.
With debt review or administration they will negotiate with your creditors and you pay the administrator or debt counselor a monthly amount and they split it up between your creditors.
Getting a Debt consolidation loan will see the bank giving you a lump sum to settle your debt, or, if they feel it’s necessary, instruct the attorneys to settle the debts first and then give you what’s left over, if anything.
That means that you will only have your bond to pay on a monthly basis.
As you can see, now that you know what a debt consolidation loan is not, also helps you get a better picture of what it’s about and your ability to make an informed decision.
