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One of the debt relief options is to have a debt consolidation loan. It involves a refinancing of all your debts where you will take out one big loan to pay for the others. In effect, it will leave you with one big debt to pay for.
 
It seems that covering one debt with another is not really solving the problem. While there may be financial experts who are hesitant to suggest this type of debt relief, it has its own merits. It can be likened to a balance transfer credit card but this does not involve an actual card account.
 
The bottom line of opting for a debt consolidation loan is to help you meet your debt payments. By getting a new loan with the terms that you can afford, it is possible for you to get lower monthly payments due to the lower interest rates of the loan. This lowered amount can also be the result of a longer payment term. Having stretched it longer will mean you get to pay smaller increments. Another advantage is you are able to combine your debts to make payments easier. Instead of monitoring different debts, you only pay for one. As appealing as that may sound, there are financial requirements before you can implement this type of debt relief.
 

For one, a steady and stable income is a must. Since this is a loan, you need to apply for it and gain approval before you can use it. Having no income to pay for the loan is not likely to get you one.

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Another requirement is a good credit standing of 720 and above. This will help you get the best rates on your loan. This is a great option for people who are just about to be delinquent on their payments and would like to implement a new payment strategy. If you haven’t missed any payments yet and have remained consistent in paying your minimums, your credit score haven’t gotten wind of your financial dilemmas yet. You still stand a chance of getting a great deal on your loan. The only thing that may be bringing your score down is the amount of debt that you have but as long as you maintained a good payment history, it should bode well for you. If your debt to income ratio is good, your chance of an approval is possible. Using a debt consolidation loan to help you manage your different financial obligations may be approved with a good interest and affordable payment term.
 
If you do not have a good credit standing you can still apply for a loan to cover all your other debts. However, the lender will request for a form of collateral from you. If you offer your home, that is called a Home Equity.
 
A Home Equity Loan is actually the most popular way of debt consolidating. The idea is to get a loan based on the current equity of your home. You will use this loan to pay for your other debts and you concentrate on paying for the new one. Not everyone agrees that this is a great option because you are converting your unsecured debt into a secured one and you are putting your home on the line. In the event you cannot pay your debt, the creditors will come after your home. Instead of just being deep in debt, you will end up losing your home too.
 
The collateral is not only limited to homes or any real estate property. It can also involve other valuable assets of the debtor – like a car or any vehicle that has a value that will cover the totality of the loan. This is also known as a title loan wherein the lender gets to repossess your property when you are unable to pay.
 
If you do not have a form of collateral to offer the lender, you have no choice but to get a loan that will either impose high interest rates or short payment terms. These include signature and payday loans. However, you need to take extreme caution in using these methods because they are very easy to be buried in more debt because of these loan types. In fact, a few debt experts will suggest this to you because of the risks involved.
 
There is another type of loan called the peer to peer (p2p) loans. This involves investors, borrowers and a third party company who will mediate. You can go to Prosper.com or Lending Club to look for investors who can help you get the financing that you need. Here, you go to the website of the mediator (like prosper or lending club) and you put together a proposal for your specific financial need. These proposal listings are then reviewed by possible investors who are willing to lend with interest. Once chosen and the process is complete, you proceed to make monthly payments where it is then divided between the mediator and the investor.
 
Peer to peer loan is just another alternative when you are thinking of consolidating your financial obligations. You apply for a loan and once approved, you proceed to cut checks for monthly payments. This method is very similar in getting a bank loan with just a few differences. One is that the transaction is not between you and a financial institution. It will be between two people, the borrower and a lender. Another difference is that the transaction is mediated by a third party. This is important in order to conduct due diligence and to ensure that monthly payments are made and that the investors are coming in to fund the proposals in their listings.
 
In choosing the debt consolidation loan that you will opt for, consider carefully the new payment that you need to shell out every month. If you will be putting collateral on the line, you have to be extra careful not to lose it too.

One common pitfall for debt consolidations is from the illusion provided by the lower monthly payments of your one debt. It will delude you into thinking that your debts are not so bad and by paying off all your credit card debts, you are back to zero balance. The temptation to use them to purchase again will be very strong.
 
Like the other debt relief options, you need to discipline your spending habits and hone your financial management skills. If you are not careful, you may fall back into your old ways. Debt consolidation loans do not really encourage good spending habits.
 
To summarize, choose debt consolidation loan if:
 
You have a steady and stable income.
You have more than one debt and you want to consolidate them into one manageable debt.
You have collateral with at least the same value as the debts you want to consolidate.
You have a good credit standing and you want to keep it that way.
You can resist the temptation to use the credit cards you have cleared to avoid incurring more debts.