California Debt Consolidation Loan

California has in place very good tools to help consumers get out of debt they may have gotten into inadvertently or may have been able to afford at one time, but can no longer due to changing income circumstances. One of these tools is debt consolidation. A California debt consolidation loan is not always the best option, but debt management consolidation may be just what the doctor ordered.

Debt consolidation is a when a lender or debt counseling agency arranges for all your bills and payments to various creditors to be paid all at once to single entity. This can occur in one of two ways. The goal is to reduce both the monthly payment amount and the total amount owed. However, this doesn’t always happen. In California, debt consolidation loans may be pushed onto people when it is not in their best interest. With a debt consolidation loan, a new creditor is created, and the money from the new loan is used to pay off all the other debt.

In a best-case scenario, the new loan is at lower interest, thus reducing monthly payments and giving enough room to reduce the amount that will be paid in total. In a worst-case situation, the lender will take advantage of the debtor, giving them a higher-interest loan that is spread out for several more years than the original debt. This may appear to make the debt lower, but because the loan is for a longer period, the total amount paid ends up being much higher. Additionally, the loan may not be reducing the monthly payments significantly.

In California, debt consolidation loans are usually never needed. This is because the state has a great system of non-profit debt management organizations set up. A debt management organization can put a debtor through debt consolidation without a debt consolidation loan. This is done by negotiating directly with each lender. The debt management organization will work to reduce the amount of the debt and to reduce the interest, thus lowering payments. The debtor then makes one monthly payment to the organization and they split up the payment to the various creditors according to the agreed-upon terms.

Still, some people are set in paying the debt off with a loan. A California debt consolidation loan usually requires collateral. That collateral is in the form of home equity, the amount of money you have already paid on your home compared to its total value. The debt consolidation loan is actually a form of mortgage. Anyone wishing to add a mortgage to their home must think it through seriously and analyze every aspect of the new mortgage and how it compares to the debt already owed.