The facts for a debt consolidation loan
Unfortunately, many people wait far later than they should to consolidate their debt and manage it. One of the main reasons for this is that some people perceive debt consolidation to be negative when in reality it actually provides a number of advantages. Like any other important financial decision; however, you should fully understand the advantages and disadvantages of consolidating your debt.
First, understand that the process of consolidating your debt involves obtaining one loan to pay off all of your other debts and then paying off the single loan rather than the multiple loans. One of the major advantages you can gain through a debt consolidation loan is a lower interest rate.
Credit card companies frequently charge 18% interest or more, making it very difficult to pay off the original debt. A consolidation loan; however, can be obtained with a lower interest rate. This lowers your monthly payments making it much easier and affordable to pay them.
You should be aware if you are considering a debt consolidation loan that by doing so you are giving the consolidation lender the authority to take over all dealings with your creditors. The advantage of this; however, is that you no longer have to deal with it and can avoid further problems such as collection attempts.
Qualifying for a debt consolidation loan
Not everyone can qualify for a debt consolidation loan. In order to qualify you generally must have a steady source of income that you can use to repay the loan. Depending on the lender you may also be required to have either collateral or a co-signer. You will also need to turn over all information regarding your monthly budget, including expenses and income.
In addition, it is important to understand that not necessarily all types of debt can be consolidated with such a loan. Generally, the most common types of debts that can be consolidated with one loan include medical bills, credit card bills, department store cards, student loans, personal loans and checks that have bounced.
Like any other major financial decision there are certain facts you need to find out before you make a final decision. One of the most important decisions you must find out is how much will be charged for the loan. While it is quite common to pay a small fee, you should not work with any company that charges a large fee for a consolidation loan. You should also find out how much interest will be charged on the loan. Generally, it will be lower than what you have been paying. If the rate is higher, it will not benefit you much. Whenever possible, try to obtain a fixed interest rate. Finally, don’t forget to find out exactly how much your monthly payment will be and what kind of effect the consolidation loan will have on your credit.