Debt Consolidation Loan
Is a debt consolidation loan something you should consider?
A consolidation loan is a loan that you apply for so that you can pay off other debts. Basically you are taking all your existing loans, for the most part, and taking a loan which gives you the money to pay them off.
However, before taking out a debt consolidation loan, research the various companies offering these loans and shop for the best deal.
What Are the Fees?
Keep in mind that there are companies out there that take advantage of people on debt. They know that these people are desperate for a way out of debt so they sometimes charge certain fees just for processing the debts.
If you are required to pay out monies before you even get the loan, you will definitely want to shop around. Find a company that will process your application for a reasonable fee.
What is the interest rate for the consolidation loan? A secured loan might be more risky but the interest may be lower. If the consolidation loan is a bargain, that's obviously a huge plus.
What Are the Monthly Payments
The goal of debt consolidation is to make the loan financially easier for you. An effective debt consolidation loan should have payments that are more manageable and more affordable. Determine how much you are paying monthly right now for all the loans and compare that to what your new monthly payment will be.
Ask the consolidation company how the consolidation loan will affect your credit score. It's important eliminate debt but you also want your credit score to rise.
Disadvantages of Consolidation
A debt consolidation loan may offer lower interest rates and smaller monthly payments, but it will also take a lot longer to pay off. You could spend a lot of years paying off this loan. Your monthly payments may total to an amount that is much larger than the original loan you took out.
You may also be asked to put up your house or your car as collateral. This means you could lose these assets if you miss a couple payments. If you decide to pledge your assets, make sure that you are fully committed towards making each and every monthly payment.
One more note. If you get the loan, do not take out any additional loans until it is paid off. Too many people think they can now take out another loan since their monthly payment is lower. Next thing you know, they are again facing financial troubles. Take that extra money and pay more on your monthly payment when you can so you can pay that loan off in a shorter period of time.
When you know about these facts, you can make a better decision regarding your Debt Consolidation Loan.