Debt Consolidation is a way of taking several of the different types of debt you’ve accumulated and rolling them into one contract with one monthly payment. That might sound convenient, but before applying for debt consolidation, let’s look at 3 key factors that will help decide if this type of product is right for you.
1. Know which Types of Debt You are Carrying
The most common types of debt are credit card debt, home mortgages, home equity loans, car loans and student loans. This list represents a combination of secured and unsecured debt:
A secured debt is backed by collateral, or something of real value. A mortgage is a secured debt because the loan is backed by the value of the house itself. Loan companies are more likely to give money backed (or secured) with an asset. If you can’t make your payments, the company can gets to take over that asset.
Credit card debt is considered unsecured debt, because there is nothing of value backing the debt. The amount of credit is based on the borrower’s credit history. If the borrower can’t make the credit card payments, he has to find a way to come up with the money.
Installment loans are loans that are unsecured, but not a credit card. They are often provided by traditional banks banks or specialty finance companies. Unlike credit cards (or “revolving debt”), installment loans have fixed monthly payments for a fixed period of time.
2. Understand Debt Consolidation
The act of combining several loans or liabilities into one is known as debt consolidation. This involves getting approved for a new contract that is then used to pay off a number of other debts. One popular reason to consolidate debt is to attain a lower interest rate. Debt consolidation is also a way to simplify one’s finances by having a single monthly payment. Other reasons to consolidate one’s debts include wanting to lengthen (or shorten) the amount of time it will take to pay back all of one’s debts, or to enter into a more flexible structure.
3. Be Realistic About Your Cashflow
If you look at the debt you have to pay down and feel pressured or worried about making the monthly payments, you probably have cash flow problems. Debt consolidation loans generally offer a longer repayment period. Ask yourself the following:
Have you missed a payment or been late because a payment was due before you had enough money in your bank account?
Does your overall budget account for regular payments without maxing out your cash on hand or your credit cards? Are you hard-pressed to stay on schedule?
Do you have a zero/low-interest credit card you can use to avoid high finance charges? Or is your credit score at risk if you accumulate too much debt on one card?
What would happen to your debts if you had a temporary interruption in income or some significant unforeseen expenses?
A different way of consolidating with Cumulus Funding
In this article we talked about lower interest and convenience of a single payment as benefits of debt consolidation. Cumulus adds to these another reason: With Cumulus, you’re protected if you experience a loss in wages or involuntary unemployment. With us, we mitigate that risk. Since we’re investing in you, our financial interests are aligned with yours. Simply put, if you are struggling, we struggle with you, allowing your payments to go down.
Picture this scenario: What would happen if you took a pay cut at work and your wages decreased by 25%? Your fixed expenses would be harder to keep up with, right? You may slip behind and fall deep into debt.
Now picture this scenario: What if you took a pay cut at work and your wages decreased by 25% and your expenses also decreased by 25%. Everything would still be affordable, right? That’s exactly what happens with us. Since we’re investing in you, if your payments go down, so do your monthly payments. If you’re unemployed and have no income coming in, your payments go to $0. This isn’t a deferral; as part of our contract with you, if you have a loss of income, your required payments go down proportionally.
We’ve helped many hardworking Americans consolidate debt through our innovative financing structure, a Future Income eXchange (“FIX”). Many people turn to us for debt consolidation because of our unique and simple financing structure, that aligns the interests of financier and client. This innovative way to get hardworking folks the money they need may revolutionize the way people receive money. Read more about Cumulus Funding, and we hope to hear from you with any questions.