How Does Accelerated Debt Consolidation Work?

Accelerated debt consolidation can help you to get out of trouble when you have become swamped with debt and are struggle to manage all of your monthly payments. If you are having difficulty in making the required minimum payments each month, or have even ended up missing some of them, then you probably could use some help.

Debt consolidation takes your existing debts and brings them together into one large loan that will have an interest rate lower than the combined rates of interest you have to pay now. This will make it easier to make your repayments and it can also take less time to pay off completely. If you have many debts at high interest rates, this can be a sensible move to make.

There are two types of debt. Unsecured debt, usually a personal loan or credit card, does not require any collateral as a guarantee. Some sort of collateral, such as a property that you own or some other asset, guarantees secured debt. Common secured debts are mortgages and car loans for which your house and car are collateral. Collateral can be repossessed by your creditor should you fail to make repayments.

The accelerated form of debt consolidation works in the same way as the ordinary kind, but it only consolidates unsecured debts. Generally any secured debts you may have will be ignored.

The first thing that your financial counselor will do, should you take on the services of a debt consolidation firm, is to divide your loans into secured and unsecured loans. They will then work out a new repayment plan for your unsecured debts, which they will agree upon with your various creditors.

Accelerated consolidation is a good route to take if you have poor credit and are in difficulties with large debts that are growing due to high interest rates. The accelerated consolidation will be able to help you get rid of your unsecured debts, which are usually smaller than secured ones. They formulate a plan that allows you to repay them as quickly as possible. Large interest payments are often required on unsecured loans too, so it would be a good move to get rid of them as soon as you can. Interest rates on credit cards commonly range from ten to thirty percent and a personal loan could be accumulating interest at a rate of about twelve percent.

If you do decide to try accelerated consolidation, you should make sure you understand exactly what it entails and determine if it is right for you. It is generally suited to people who are in urgent need of help and have to get their debts under control as quickly as possible. If you try to consolidate all of your loans, secured and unsecured, you will be making plans over a much longer repayment period. You may not need to do this. Once you have cleared your unsecured loans, you may find that your payments for the secured debts are manageable.

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More Borrowers Pay Credit Cards Before Mortgages

It’s exactly the opposite of the norm. Usually cash-strapped Americans during tough economic times will miss credit card payments before they’ll miss mortgage payments.

Welcome to the new world order.

The percentage of borrowers who are delinquent on their mortgages but paying their credit card bills on time is growing, to 6.6 percent in the third quarter of 2009 from 4.9 percent in the same quarter of 2008, according to a new study by Chicago-based TransUnion. In an interview with Reuters, the author of the study, Sean Reardon, confirmed, “This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages.”

While concerning, I don’t find this surprising at all.

Today’s consumer is all about cash-flow, and that means keeping the credit cards current. A home is no longer the product it was even five years ago, no longer an emotional investment. For a growing number of borrowers, a home is now a financial investment plain and simple, and more and more often, a lost investment. I read an article a few years ago about how Americans’ attitudes toward their homes was changing, how twenty years ago losing your home was as big a social stigma as it was a hit to your credit rating, even more so. Not anymore.

Let’s face it: An awful lot of borrowers out there put nothing into their homes and therefore have neither a financial, nor, more profoundly an emotional nor social stake in the structure. Of course they’re going to pay off their credit cards first, because that has an immediate impact on what they can and cannot buy and do.

On top of that, most troubled borrowers have already figured out that there are so many forces in motion trying to save homes from foreclosure that they can easily miss one, two, five or six mortgage payments before even getting a call from the bank; then, they’ve got many more months of negotiations over modifications, short sale options, even the foreclosure process itself, insuring they will have a roof over their heads for a good long time.

I heard an interesting factoid at the American Securitization Forum conference in DC yesterday.

Home building Analyst Ivy Zelman said that in some Florida counties the courts are so backed up with foreclosures that it can take up to three years to get one home through the system.

That’s three years of living rent-free, which frees up plenty of cash to pay the Visa bill.