Consolidating debt information
Although each lender will probably require different documentation depending on your history, the most commonly required pieces of information include a letter of employment, two months' worth of statements for each credit card or loan you wish to pay off, and letters from creditors or repayment agencies.
If you have a good payment history with a bank, credit union or credit card company, asking that institution about a debt consolidation loan should be your first step.
However, there are specific instruments called debt consolidation loans, offered by creditors as part of a plan to borrowers who have difficulty managing the number or size of their outstanding debts.
Creditors are willing to do this for several reasons – one of them being that it maximizes the likelihood of collecting from a debtor.
One is to consolidate all their credit card payments onto one new credit card – which can be a good idea if the card charges little or no interest for a period of time – or utilize an existing credit card's balance transfer feature (especially if it's offering a special promotion on the transaction).
Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.
This amounts to a total savings of ,371.52 (,750 for payments and ,621.52 in interest).
Of course, borrowers must have the income and credit worthiness necessary to allow a new lender to offer them at a lower rate.
There are two broad types of debt consolidation loans: secured and unsecured.
There are also several consolidation options available from the federal government for those with student loans.
Theoretically, debt consolidation is any use of one form of financing to pay off other debts.
Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.