If you hold a high debt to income ratio, then you are supposed to be overburdened with debt. A high debt to income ratio naturally suggests that a substantial part of your monthly income goes towards repaying your debts. Many people with high debt to income ratio consider debt consolidation as the best possible solution of their indebtedness
What’s the importance?
If you have a high debt to income ratio and you want to come out of the financial difficulties, then debt consolidation can be the best solution for you. By consolidating your debt, you can significantly reduce your debt burden. Once your total debt amount decreases, your debt income ratio also starts to improve.
What are the options?
- Debt Consolidation Program – You can opt for a debt consolidation program in order to reduce your debt.
Advantages: Generally, when one enrolls for a debt consolidation program, the debt consolidation company starts negotiating with the creditors with the aim of lowering the original debt amount. In many cases, they become able to reduce not only the total debt amount, but also the rates of interest payable on loans.
Disadvantages: Here, the main problem is that, you may find it difficult to enroll for a debt consolidation program with a high debt to income ratio. Most of the debt consolidation companies find it very risky to offer a consolidation program to a person who holds a high debt to income ratio.
- Debt Consolidation Loans – If you have a high debt income ratio, then you can consolidate your debt with the help a debt consolidation loan. Debt consolidation loans are generally of two types: unsecured debt consolidation loans and secured debt consolidation loans.
Unsecured Debt Consolidation Loans
Advantages: By using the loan amount of the unsecured debt consolidation loan, you can pay off all your existing debts and in this way you can replace your multiple debts by a single debt consolidation loan. An unsecured debt consolidation loan can really help you in getting out of the credit crunch.
Disadvantages: If you hold a high debt to income ratio and want to go for an unsecured debt consolidation loan, then it may be problematic for you. Just like the debt consolidation companies, the consolidation loan providers also find it risky to offer a loan to a person, who already bears a heavy burden of debt.
Secured Debt Consolidation Loans
Advantages: If you own a property and want to take a debt consolidation loan using that property as security, then you can easily get a debt consolidation loan. Such loans are called Secured Debt Consolidation Loans. You can not only combine your debts by a secured debt consolidation loan, you can also benefit from a lower interest rate. As you pay off all your existing debts using the loan amount of the secured debt consolidation loan, you start making a single payment in the month. You are no more required to make multiple payments to multiple creditors.
Disadvantages: You have to be extra careful when taking a secured debt consolidation loan, because by taking such loan, you are converting your unsecured debt into secured debt. In no way, you can discharge this secured debt. If you become unable to repay the loan, it can even force you to file bankruptcy.