Debt consolidation in a simple word is like taking one big load to pay off other small number of loans. It is generally done to avoid multiple loan complications. Sometimes it helps to reduce interest. Because many small unsecured loans collectively bears more profit. If the loans are secured debt consolidation loans then there will be less interest on the loan that other small but unsecured loan. So ultimately it is beneficiary for loan taker to take debt consolidation loans n such situation.
Follow following steps:
1. Current debt structure analysis:
· Calculate your total debt
· Calculate and forecast future interest due to the current debt structure
2. Current asset analysis:
· List down your all the assets like home, car, jewelry etc.
· Analyses your assets portfolio and prioritize it according to necessity.
· Calculate your current asset value
Listing should be done keeping into mind only those assets which are fully owned by you (not in partnership) and you could get the loan on the bases of that asset from the lender. Prioritize is important because if you fail to pay the loan lender will get its ownership and you no longer will be the owner of the loan. IF the asst like car or home is necessary of course and risk is quite high then it is advisable not to keep that as a guarantee. Finally choose the assets based of its value against the debt needed to pay of all current small loans.
Remember Secured Debt consolidation loans should be able to neutralize your entire current loan.
Interest calculation and comparing it with Secured Debt Consolidation Loans:
Calculate and compare the interest by keeping in mind Present value analysis (PV value). Method involves calculation present value of all your future liability for both debt structures and then compares both values. These will give idea whether the interest benefit is significant and whether you should go for the Secured debt consolidation loans. If the PV value sum of your consolidated loan’s interest is significantly less than the current debt structure only then you could opt for the Secured Debt consolidation loans.
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