Debt Consolidation
Loan
A consolidation loan offers the opportunity to put all your
outstanding balances together into one block. This can include
credit cards, personal loans and sometimes your mortgage.
If you feel overburdened with debt and cannot manage all
the repayments, a debt consolidation loan is a good idea.
A debt consolidation loan can reduce interest rates and lower
your monthly payments, avoid bankruptcy, or consolidate your
bills and have one monthly payment. For example, if you have
three credit cards, you may be able to get a debt consolidation
loan to pay off the credit cards, so that you only have one
payment instead of three each month.
For many consumers facing financial hardship, debt consolidation
offers the best and most effective solution. Be aware, however,
utilizing only debt consolidation for reduced rates, interest
and payments only solves part of the problem. By uniting a
good debt consolidation program with solid financial responsibility
education provides you with a total solution.
These types of loans are usually secured on your home so
you must make sure you can afford the new repayments, or your
home will be at risk.
Recommended Debt Consolidation Lenders
The Pros and Cons of Debt Consolidation Loans
You need to make sure that you understand both the pros and
cons of debt consolidation loans.
Pros
- Single monthly payment - you will make
only one payment per month instead of making two or more
payments with different due dates. You will have only one
creditor to deal with.
- Lower interest rate - your debt consolidation
loan may have a lower interest rate than the rate you are
paying on credit cards.
- Reduced monthly payment - with lower
interest rates and/or extended terms, you may be able to
reduce your monthly payments.
- Improved credit rating – it may
lower your debt-to-income ratio and improve your credit
score. This will in turn help your get lower the interest
or rates being paid on other
- Tax breaks - on the interest potions
of a debt consolidation loan using home-equity, you can
make a tax deductible on these payments.
Cons
- Risk of property loss - when debt consolidation
converts unsecured debt to secured debt there is a risk
of loss of the property used to secure the new loan in the
event of default by the debtor to make the required payments.
- Longer time to pay off - debt consolidation
loans extend the repayment term
- More total interest payment - due to
extended payment period you will pay more interest over
the life of your loan even though the interest rate is less,
- Reduced negotiation flexibility –
since you will be left with only one creditor, this can
make it difficult to negotiate should you have further problems
in repaying your loan.
- Easy to get into further debt - With
an easier load to bear and more money left over at the end
of the month, it might be easy to start using your credit
cards again or continuing spending habits
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