Is Debt Consolidation Good For You?

Getting confused from monitoring different interest rates and terms of various debts and loans you’ve accumulated over the years? Would it be better for you if there’s only one large single loan that you have to pay instead of these 3, 4 or 5 different ones? Then debt consolidation might be a good option for you.

debt consolidation

How does this work?

Generally, debt consolidation means that you are cancelling multiple debts by getting a single large loan to pay them all off. Many borrowers apply for this financial tool with the goal of settling their debts on a fixed interest rate or at least a lesser, more manageable rate. Consolidating debts can help clear you off multiple debts from different institutions. It also gives you ease and convenience of paying only one loan at a fixed rate.

Debts consolidation used to allow borrowers to stream in multiple unsecured loans into a fixed single unsecured one. These days however, the process only involves two or more unsecured loans into a single secured loan that is uses any asset as collateral. Borrowers can expect really low interest rates when the collateral is a high equity asset such as a house or a prime real estate property. Lenders would be happily secured and they can claim your property in case you are unable to pay off your loan.

Why Go for Debt Consolidation?

If you are nose deep in credit card bills or high interest installment loans such as student loans and vehicle loans, applying for debt consolidation could be your best bet. This can help you process 2 or more several heavy interest-debts into a single achievable payment scheme.

Multiple bills can be overwhelming and if you cannot manage it properly, you might end up paying more with accumulated charges, fines and hidden fees. You might also realize that you are already labeled with a bad credit record which may hinder you from getting a loan approval in the future.

Consolidated debts usually have offer reasonable and fixed interest rates allowing borrowers to pay of dues at specific intervals. This then eliminates confusion that goes with having multiple payments.

Why Not Go For Debt Consolidation?

Sometimes a lender would offer interest rates that are no better than your current one, this makes no sense to consolidate your debts. You might also be attracted to a stretched time frame and you won’t feel financial pressure for payment, but if the term is extremely long and the amount involved is the same, you might just end up paying more interest that you should.

If you feel like you are on the verge of bankruptcy, carefully search for a debt consolidation firm who can discount the loan amount you have. Applying for this financial tool makes a significant impact on your future so it may also be good idea to consult a financial advisor. Though debt consolidation is advised for ballooning credit card debts, it might also become your savior when you find yourself paying for multiple debts at once.

Image Credit:
Stuart Miles – FreeDigitalPhotos.Net

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