In this struggling economy many people are turning to financial institutions to help them solve their debt problems. Debt consolidation is an attractive option many people consider, but is this loan really right for everyone? The answer is no, debt consolidation is not the best debt solution for everyone. Here are a few points to consider before deciding if a debt consolidation loan is right for you.
What is a debt consolidation loan?
A debt consolidation loan is a loan you acquire in order to pay off all your unsecured loans, for example credit cards, student loans, personal loans, store accounts and other high interest loans. A debt consolidation loan allows you to consolidate your debt into one fixed, affordable monthly payment, as opposed to paying various creditors. Generally, a debt consolidation loan is obtained through the equity of your home.
The benefits of a debt consolidation loan
If a debtor owes money to several credit card companies as well as other loans, the payments every month can prove costly and take a huge chunk out of their income. Additionally, if you are making only the minimum payments every month because that is all you can afford, it could take years to pay off your debt. By consolidating debt, you only make one payment a month, which is usually lower than the combined payments are and also offers a lower interest rate.
The disadvantages of a debt consolidation loan
In most cases a debt consolidation loan is derived by using the equity in your home, which means your house is at risk. Therefore, if you are unable to make payments on your loan, you risk losing your home. Also, consider why you are in debt in the first place. If it is because you cannot control your spending, then the same thing will probably happen later down the line. If you are unwilling to change your spending habits you will end up even deeper in debt. Before deciding on a debt consolidation loan, be honest with yourself and realise that you have to change your spending habits.
Debts to consolidate
Credit card balances, car loans, student loans or any other high interest loan are good candidates for debt consolidation. Also, the amount of money you will be approved to borrow will be the deciding factor in what loans you can pay off. Also, a debt consolidation is a 10-15 year commitment, so it may take longer to pay off than most of your existing debt.
Applying for a debt consolidation loan
There are many financial institutions like Harrington Brooks offering financial services online. Compare the interest rates of the various lenders and choose a lender you trust. You will need to provide information to your lender like your total assets, gross income, overall debt and employment information. The lender will also look at your credit score to determine if you are a good risk. The interest rate on your debt consolidation loan will be determined on how high your credit score is and your credit history.
This article was written by Harrington Brooks and offers tips and advice on debt consolidation loans.