What do you do when you have too many loans to pay back or find it too hard to keep track of which debt has to be paid and when? This is a problem that many people face, which causes stress. But there’s a solution to this issue – getting Debt Consolidation Loans.
The process of merging several debts into a single debt is known as debt consolidation. So instead of paying off multiple lenders or credit card issuers, you combine the payments into one. This goes to one lender, usually at a lower interest rate.
Debt consolidation can be done to merge the following:
- Personal loans
- Student loans
- Auto loans
- Medical debt
- Credit cards
What is a Debt Consolidation loan?
You can use this loan to refinance your debt. You have to begin by applying for a loan that covers the amount you owe on your current debts. After this is approved, you use the funds to pay back the debt balance. This new loan that you’ve taken can be paid back over time.
When you decide you want a debt consolidation loan, you have to carefully evaluate all the features, which are:
- Loan type: The most common types of loans are personal loans, home equity loans and credit cards. Some will require collateral, while others won’t.
- Loan terms:If you take a long-term loan, your monthly payments will be affordable but have a higher interest rate at the end. A short-term loan is better since you will spend less on interest, though you’ll have to pay more each month.
- Secured Vs Unsecured: A secured loan will require you to put down collateral, while an unsecured loan won’t
Benefits of Debt Consolidation Loan
Using debt consolidation won’t get rid of the debt you have, but it does make the process easier and less costly. If you are looking to streamline your monthly payments, save money and get to the payback date without stress, debt consolidation will help you. There are more pros to this; they are:
- Fast way to pay back debt
- Lesser interest costs
- Only one debt to pay back
- Fixed schedule to repay
Aspects of understanding Debt Consolidation
Before opting for a debt consolidation loan, you must weigh your current needs against your long-term plans. Though it can be an excellent opportunity to repay debt quickly, there are some limitations to this. They are:
- Can’t solve all your financial problems
- There will be upfront costs
- Interest rates will be higher
Is it right for you?
While getting such a loan has its cons, it might help in some cases. You can start by considering whether you:
- would prefer to pay back only one creditor every month
- want to be sure about when you will be debt free
- will qualify to pay a lower interest rate
In a nutshell
If you want a way to pay back your debt quicker and save money, getting Debt Consolidation Loans are the way to go. It will be much more convenient to pay back one creditor each month. But while this can save you the stress of dealing with multiple creditors every month, there are additional costs like a high rate of interest that will have to be paid.
Eventually, it is your decision to make. Take time to go through the above points and make an educated decision.