When the housing market was booming there were more options for debt consolidation. People looking for debt consolidation loans now days are going to have a tougher time finding institutions willing to lend them money. Generally it will be tough to find someone to lend you money unless you have some asset that is worth more than the amount of the loan. In the past many people used their homes as this asset.
As housing prices have dropped, there are fewer options for people desperately looking for a way to consolidate their debt. Most of these people are dealing with debt incurred buying items that depreciate rapidly. Vacations, consumer electronics, and furniture are all items that can’t be resold for the purchase price. Sometimes they can be sold again, but usually at a great loss. The $2000 couch you bought 2 years ago, is probably only worth $500 advertised in your local newspaper. (Antiques are sometimes an exception, but if you don’t have experience selling old items it is unlikely you’ll do very well in a pinch.)
There are a few options still available to people looking for debt consolidation. One is to consolidate to lower interest rate credit cards. This might work for a few people, but beware! The low interest rate is often a temporary gimmick that quickly inflates to the same high rate you are paying on other items. Another option is to borrow from relatives. With interest rates at such a low point for money in the bank, you may be able to find someone willing to take payments from you at a rate higher than what they can get with their money in the bank. Still it is likely that this person will want to make sure that their investment is safe, so if you don’t have anything to put up as collateral it may be a touch sell.
In the end, avoiding situations that require consolidation of debt is probably the best option. Debt consolidation is like a parachute in an airplane. You don’t want to ever have to use it. Consolidating can be a life saver when things go bad, but only if used correctly. If you don’t know what you are doing with a parachute or with consolidated debt, both can have serious consequences.
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