A debt reduction loan is used to pay off multiple creditors and allows the borrower to make smaller monthly payments to a single source for repayment of the combined total balances. Debt reduction loans come in all shapes and sizes when there is collateral to secure the loan. However, if there is no collateral to be pledged as security, then the borrower must turn to financial counseling. Financial counseling allows the debtor to utilize a third party intermediary to contact the creditors and work out a consistent monthly payment plan.Using a counseling service can decrease balances owed, but can also take longer to pay off than a debt reduction loan, thus increasing the total balance because of long term interest rates. Ideally, a person will want to pay off their due balances without the use of another type of borrowing. This is sometimes hard when there isn’t enough monthly income to effectively pay off all balances. Debt reduction loans offer a faster way to clear balances with creditors and pay a smaller monthly payment resulting in more cash flow. This type of lending is not the answer for everyone, especially those that have spending problems.
A good lending program will offer some type of financial counseling to work in conjunction with disbursement. The best way to ensure payment is to disperse the debt reduction loan proceeds directly to the creditors. If any money remains, it is then dispersed to the borrower to do with as they please. Some debt reduction loans offer a deferment or grace period in which no payments are required for a certain amount of time. After that grace period has ended, the agreed upon monthly payment will be due to the lender as repayment begins for the life of the loan.
While substituting due balances for one due amount may not be the end all be all of the problem for an individual, it can alleviate the choke of multiple debt payments. With the new freedom of cash flow debt reduction loans allow, the borrower may be able to apply wise spending habits in the future. The Bible says in Romans 13:8 “Owe no man anything”. If God does not want his children in debt, there must be a good reason. Debts bind freedom. Those that owe money are slaves to creditors. God wants His children to live freely in this life, and a financial problem can quickly eliminate that freedom.