Put simply, it is a loan that is used to pay off other existing debts, resulting in just one monthly payment. This type of loan is commonly used to combine unsecured debt, making it easier to manage your overall budget and stick to a repayment plan.
How Do I Know If Debt Consolidation Is Right For Me?
Debt consolidation may be a good idea if you find yourself in any of the following situations:
You’re tired of making several different debt payments each month and would like to combine them into just one payment
You’re having trouble staying current on the payments for your existing debt
Your existing debts have varying interest rates and you’d like to lock in one rate for everything
You want to reduce the amount of your monthly budget that goes toward debt repayment
You’re looking for an easier way to pay off existing debt and become debt free
Types Of Debt Consolidation Loans
Debt consolidation loans can be either secured or unsecured. A secured loan uses something of significant value to secure the loan amount. The most common source of security for such a loan is your home. Secured loans are less risky for the lender, usually leading to a lower interest rate and larger amounts available for borrowing.
An unsecured loan is not secured against something of significant value, so it is much riskier for the lender. This type of loan usually comes with higher interest rates, smaller amounts available for borrowing, and often includes restrictions on how you can spend the money you receive.
In either case, secured or unsecured, the debt consolidation loans available to you will depend on your credit rating. Those people with poor credit can still access debt consolidation loans, however, and over time can even improve their credit rating by diligently making payments on time and in full.
Why Would I Want A Debt Consolidation Loan?
There are many reasons why you might want to seek a debt consolidation loan. For example, you may be able to reduce the total of your monthly debt payment and simplify your budget by making just one payment to a single lender. Or, you may be having trouble keeping current on your existing debts and need a way to make your payments affordable while repairing your credit rating over time. Consolidating your debts may mean it will take longer overall to become debt free, but in many situations it’s worth it if consolidation will improve your overall financial health.
I Have A Bad Credit Rating And Don’t Think I Can Qualify For A Loan
While it’s true that many lenders won’t write loans to people with a bad credit rating, there are many other lenders who specialize in such loans. They typically charge a higher interest rate and may place more restrictions on how you spend the money you receive, but the benefits of getting your debts under control often outweigh the additional costs involved.
More than ever, consumers have a wide range of options for finding a debt consolidation loan. There are numerous web sites and online resources at your disposal, and many lenders have moved to all-electronic loan process. Be sure you thoroughly read the details of each lender’s offer and make careful comparisons among them. Don’t allow yourself to be rushed into a making a decision; wait until you have gathered enough information to make an informed, thoughtful decision.
Debt consolidation loans are an increasingly common option for people in a variety of financial situations. Before you decide if it’s right for you, carefully evaluate the advantages and disadvantages of such a loan and take advantage of the plentiful information resources available to assist your decision-making process.
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Many of us know how difficult it can be to deal with high levels of debt, and when you have a wide range of creditors to deal with and a variety of repayments to make each month, budgeting and financial management can become very difficult.
