What is Better
– Loan Modification or Debt Consolidation?
Both loan modification and debt consolidation have their pros
and cons – and really it depends on the kind of debt that you
have as to which one will most likely work best for you. It used
to be that most people simply either paid off their credit cards
for the rest of their lives, or they got a home equity line of
credit (which was basically just a debt consolidation.) Now
people realize that they have several choices when it comes to
handling their debt, and that this is just the first hurdle.
A debt consolidation takes all of your existing debt and puts it
into one payment. This then makes it easier for you to have a
handle on your debt. You can handle it through a debt
consolidation company, or you can handle it directly through
your bank of choice. You simply add up the amount of money that
you owe and get a loan for that amount of money. You then take
the money that you have received from the debt consolidation and
pay off all of your debts meeting your debt free except for the
consolidation. You then make one monthly payment until the debt
consolidation is paid off.
A loan modification takes a loan that you already have and
modify it so that you can make your monthly payments. This is
quite often seen in mortgages where the terms of the loan are
changed so that it's easier to pay. Many times in the case of a
loan modification you would add in any additional debt that you
may have incurred through credit cards and whatnot and give your
self one monthly payment through this route. The terms of the
loan would then include all of your other outstanding debt
leaving you again with one payment.
Quite often whether you go with a loan modification or a debt
consolidation it has a lot to do with the type of debts that you
have. Most people who have credit cards or medical bills will go
with the debt consolidation. Those people who already have a
mortgage will usually lean towards the loan modification
instead.
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