Do you have some debt consolidation questions? You might be amazed at how many debt consolidation FAQ answers there are out there. Numerous people have debt consolidation FAQ that they want answered. Luckily we have some debt consolidation FAQ we will provide answers for here in this article.
First in the debt consolidation FAQ is what is debt consolidation? You may have heard the term and have an idea of what it means, but you just want confirmation. That is okay. We are here to give you that. Debt consolidation is where you take more than one debt and combine it into one debt with a monthly payment and one interest rate.
So, how does this work? You have two credits cards and an auto loan. Your vehicle has some “equity” in it. Equity is value minus the amount owed on it. For instance, if you owe $3500, but the car is worth $65000 you have $3000 in collateral or equity that could be used for your credit card debt. With debt consolidation the entire amount of equity will not be used. Instead only a portion will be used and there will be closing costs wrapped up in the new loan.
The good news is that you have put the two credit cards into your auto loan. Since you have collateral to make the loan you are also getting a better interest rate than you have on unsecured debts. There is little else that is better than having a secured loan over an unsecured loan.
Keep in mind that you do not have to go for a consolidation loan that is secured. There are plenty of products on the market that are unsecured consolidation loans. The downside to these is the higher interest rates. It is not an ideal situation, but you will at least get your monthly expenses rolled into one debt rather than multiple debts. For most of us this is a lot easier to handle considering our income situation. Typically when you consolidate your debts you are gaining a lower monthly payment, though not always.