The Non-Homeownership Approach

Even if you are not a homeowner there are still alternatives available for loan consolidation. Again, there’s a clear difference between a debt help agency and a financial institution offering an actual consolidation loan.

If you go with a lender, then you will have to go through the regular loan application process requesting to borrow a set amount of money. This includes providing your personal information, a credit check, and additionally, identification of the loans you will be consolidating. Unlike a regular loan, a consolidation loan usually requires the bank to send the new loan amount directly to the old lender. So if you have three loans and get approved for consolidation, you will provide your new lender the old accounts information. Your new lender will then fund your new credit consolidation loan but you will not receive the money. Instead, based on your instructions, the new lender will send payment checks directly to each of your old lenders to pay off your old accounts. This is a similar process to when you refinance a car or a house. Unless specifically allowed, you do not receive any of the new loan monies as cash in hand.

Alternatively, some debt help agencies act as a liaison with your existing accounts. They will use what is called the “debt snowball” method of managing your debt. This means all your payments are lumped together into one dollar amount. Instead of paying all your accounts as you have been with separate bills, the liaison will contact your lenders and try to settle for a lower amount to partially reduce or write off an individual account. Then, your entire funding will go to wipe out that first account if still owed, usually being the smallest debt first or the one with the highest interest charge. After that, your combined dollar amount will then be entirely applied to your next account due and the same settlement discussion occurs with that lender. The process continues until all your accounts are paid. As you pay more accounts off the money that you previously had committed to each payment frees up and adds to the “snowball” to pay the next account off.