Business

What Is Debt Consolidation and How Does It Work?

Published

3 years ago

January 25, 2022

Debt consolidation combines all debts of an individual, often high-interest ones like credit card bills, into one payment system.

Suppose you can secure a reduced interest rate. In that case, debt consolidation may be an ideal option for you, assisting you in reducing your overall debt and restructuring to help you clear it quicker.

This guide will walk you through what debt consolidation is and how it works.

What Is Debt Consolidation?

Debt consolidation is a debt relief alternative that helps consumers bind multiple financial obligations in to one that can be regularly paid with a consolidation loan or a debt management plan (DMP).

This approach lowers the charges on debts and reduces the monthly payment. Debt consolidation sorts out the challenges faced by consumers, especially those who find it hard to service their numerous bills on time.

How Debt Consolidation Works

To consolidate debts, a borrower may request their bank or other loan providers for a balance transfer credit card, a personal loan, or a similar debt consolidation instrument.

In the event of a debt consolidation loan, the lender may instantly clear off the borrower’s outstanding bill, or the borrower may collect the money and pay their remaining sums.

Similarly, most balance transfer credit cards feature a recommended method for combining a cardholder’s current credit cards.

Although debt consolidation frequently reduces the amount a debtor owes monthly, it prolongs the repayment term of the merged debts.

However, consolidating debts simplifies the payments process, making it simpler to handle finances—this is particularly beneficial for borrowers who have problems managing their money.

Once the debtor’s old liabilities have been sorted with cash from the new loan, they’ll make just one monthly payment plan on the new loan.

Is Debt Consolidation The Same As Debt Settlement? (50 words)

While these are debt-relief options, they have a distinct difference.

Debt consolidation transfers the borrower’s loan from multiple creditors to a single creditor but does not reduce the initial amount.

On the other hand, debt settlement targets to lower the consumer’s debt levels. Settlement firms do not give loans; instead, they negotiate with creditors on behalf of the debtors.

Types of Debt Consolidation

1. Debt Consolidation Loan

Debt consolidation loans are personal loans used to reduce a debtor’s interest rate, simplify payments, and generally better loan terms.

While personal loans are often accessible in credit unions and banks, many online loan providers also provide debt consolidation services.

However, before picking an alternative, you need to seek debt advice to give you an insight into the hidden risks. Reputable FREE debt advice platforms, such as Reform Debt Solutions, could help you.

2. Credit Card Balance Transfer

A credit balance transfer happens when a debtor applies for another credit card, often one with lower rates, and transfers their entire balance to the new credit card.

Similar to other debt consolidation methods, this approach leads to a single repayment to manage, may cut on the debtor’s monthly payment, and can lower the general fee of the debt by reducing the interest rate.

Before deciding to go for a credit card balance transfer option, you should consider the accessibility of interest rates, transfer charges, transfer deadlines, and the implications of defaulting payment.

3. Student Loan Consolidation

Student loan consolidation refers to binding different student loans into one.

Besides reducing and streamlining monthly payments, graduates can benefit from borrower protections such as Public Service Loan Forgiveness.

This concept is frequently used in combination with student loan consolidation, which entails consolidating multiple governments or private student loans into one personal loan.

4. Home Equity Loan

A home equity loan is a debt consolidation approach that includes obtaining a loan guaranteed by the debtor’s home value. The cash is given to the debtor in a single payment, and they can use it for clearing off or consolidating previous obligations.

After the money is disbursed, the borrower pays interest on the whole loan. Still, since their property secures the loan, they are likely eligible for a considerably lesser interest than a debt consolidation loan.

5. Cash-out Mortgage Refinance

A cash-out mortgage refinance happens when consumers refinance their mortgage for a sum more significant than the outstanding loan balance. The borrower can then withdraw the excess in cash and clear off other debts.

This approach then allows the borrower to combine their other loan payments with the mortgage payment to make one payment. Additionally, when the loans are folded into a guaranteed mortgage, the rate is likely to be significantly less than the rate on the initial obligations.

Pros and Cons of Debt Consolidation

Pros

Combines multiple loans into one and simplifies payment
Can lower the borrower’s gross interest rate
May reduce a borrower’s gross monthly payment

Cons

Providers can charge loan origination, balance transfer, or closing fees
Borrowers may lose their houses if they fail to pay off the consolidation loan
Some come with high rates

Bottom Line

Using debt consolidation as an option for debt relief comes with many shortcomings. And indeed, it’s not the ultimate solution to the debt issue. Unlike the debt settlement approach, which reduces your loan, debt consolidation only transfers you to another lender. Besides, most of its methods tend to extend the time for settling your debts, attracting more interest rates.

Business

Michella Filipowitz: Shaping a Future of Inclusion for Children with Disabilities

Published

3 hours ago

September 15, 2024

Rosario Farell

Michella Filipowitz, a prominent model, business leader, and philanthropist, has dedicated her life to advocating for children with disabilities. Her personal story, shaped by her experiences as the mother of a child with autism, has driven her passion to build a more inclusive world where differences are not just accepted but celebrated.

Michella’s journey took a transformative turn when she became a single mother at the age of 23. Shortly after, her son, Benjamin, was diagnosed with autism at the age of three. “It was an unexpected and overwhelming moment,” Michella recalls. “No one in my family had dealt with anything like this before, but with my mother’s guidance, I was able to see Benjamin’s diagnosis not as a burden, but as a new way of understanding the world.”

Benjamin’s condition is categorized as a hidden disability. Though it’s not always obvious to others, his challenges—such as delayed speech—affect his everyday experiences. “It was difficult to watch him struggle while other kids seemed to develop so naturally,” Michella shares. “It made me realize how often children with disabilities are left out or misunderstood.”

This realization sparked a new mission for Michella: to create a world where children like Benjamin are given the same opportunities as their peers. “I knew I had to be part of the solution,” she says. “Our differences are what make us unique, and we should be embracing that, not hiding from it.”

Michella is also keenly aware of how quickly people judge others based on outward appearances. “We live in a time where everything is so public and visible, but that doesn’t mean we know the whole story,” she explains. “It’s important to have empathy and not make assumptions.”

Her advocacy work has centered on changing how schools and communities treat children with disabilities. Too often, children like Benjamin are segregated in special schools, which can further isolate them. Michella believes this approach is flawed. “Children with disabilities need to learn alongside their peers,” she says. “Only then can they grow up understanding that differences are normal, not something to be avoided.”

Her vision is clear: an education system where children of all abilities are taught together, learning to respect one another from an early age. “If we can instill the values of acceptance and understanding in kids while they’re young, we’ll build a much more inclusive society,” she says.

Michella’s commitment to helping families of children with disabilities goes beyond advocacy. She co-founded the DR Family Foundation with her fiancé to provide critical support to families who are struggling with the high costs of therapies, treatments, and education. “As a single mother, I know firsthand how overwhelming it can be,” she explains. “That’s why I wanted to help other families get the resources they need.”

The DR Family Foundation has already made a significant difference, helping families cover school expenses and other essential costs. The foundation’s next big initiative is creating a home for children from difficult backgrounds, offering them a safe and nurturing space where they can thrive. “It’s not just about providing shelter,” Michella says. “It’s about building a community where these children feel loved and supported.”

Reflecting on her journey with Benjamin, Michella speaks with gratitude. “He’s shown me that what others might see as a challenge is actually his strength,” she says. “His resilience and uniqueness are what make him so special, and I want to make sure other children have the opportunity to shine in their own way.”

Through her work, Michella envisions a world where children with disabilities are fully included in every aspect of life. She hopes that by advocating for inclusion and providing support through the DR Family Foundation, she can help create a brighter future for these children. “I want parents to know that they’re not alone,” she says. “With the right support, we can give our children the chance to live fulfilling, happy lives.”

Stay connected with Michella Filipowitz and her mission to create a more inclusive society for children with disabilities by following her on Instagram @princessmichella.