If you have found yourself with an amount of debt that seems impossible to pay, odds are you have been considering debt consolidation. What is debt consolidation and how could it help you in this situation? With debt consolidation, multiple loans can be added up to a sum that is easier to pay. Some of your debt will be paid off while the rest will be paid on a per monthly basis. However, before you jump on this possibility, you need to consider that there are both positives and negatives. Being aware of both will allow you to make a completely informed decision.
There are quite a few pros to using a debt consolidation loan. First and foremost, your debt immediately becomes easier to pay off. Rather than have a large sum of debt that needs to be paid, you can get rid of your debt gradually each month. The debt you pay will be more like a bill that is far easier to manage.
A debt consolidation loan also makes your debt easier to understand and handle. Right now, you have probably got debt from various sources. You might have borrowed from a loan company and had debt collect on your credit card. With a debt consolidation loan, it’s all collected in one, simple to understand lump sum.
With all these different money loans that you’re paying back, there will be a collection of interest rates. Some might be lower while others will be quite high. If you take out a debt consolidation loan, you’ll only be paying one interest rate. This rate will be a lot lower than what you’re used to and easier to manage.
Of course, it’s not all good news. When you take out any loan, there’s always the possibility that you accumulate more debt. In this situation, it’s because the loan frees up more of your money. You’ll be paying less each month on the money that you owe. This might sound like good news, but some people use the extra cash to borrow more money.
Also while the interest rate will be lower, you may end up paying more back. Look at the terms of your consolidation loan carefully. You need to make sure that you are getting the best deal available. It’s possible that you end up paying more because it takes longer to pay back.
A consolidation loan is an example of what’s referred to as secured debt. Essentially, this means you are tied down to paying the money back you owe per month. If you don’t make the payment on time, you could lose more than you bargained for. Your property could be repossessed, and some people even lose their homes.
Finally, through a debt consolidation loan, the lender takes your previous debts off your hands. They may not pay the money you owe, though. Instead, they might hold onto it, using it as capital to negotiate a lower cost for debt repayment. Despite the claims, not all debt consolidation companies are charities. Many are in it to make a profit. During this time, the money you owe is damaging your credit score, even though you’re paying it back.
As you can see, there is a lot of information to look at here. You need to think about the terms of the loan and who you’re borrowing it from before you make a decision.
If you are still interested in consolidating your debts into one monthly payment, we can find an ideal Debt Consolidation Loan for your situation.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.