Why a consolidation loan could be just what you need
Are you in debt and have been for a while? Has someone told you that applying for a debt consolidation loan could help you get out of debt so much faster? If so, there are a few things you will want to know about debt consolidation before you decide whether or not to do it.
Zero bad credit influenceIf you just take out a new loan to help solve some of your debt problems, you will end up negatively impacting your credit rating to quite an alarming extent. With a consolidation loan, however, there is not a negative impact, so your credit rating will remain unaffected.
Less money paid out every monthWith a new loan, you will add a large new monthly payment every month. If, like most people, you already have a lifestyle that is causing you to live paycheck to paycheck, an extra monthly payment is probably not doable.
With a consolidation loan, though, you stay with just one monthly payment. Plus, if you can negotiate a lower interest rate for your consolidation loan, you could end up paying even less than you already do. In fact, this is very likely, as consolidation loans do tend to come with lower interest rates than a normal loan.
Easier to handle loan paymentsWhen you have several loans that you need to pay, it can be very easy to miss one as you have a busy month. With a consolidation loan, however, you will only have one monthly payment to worry about. So when that is paid, you are fine until next month.
Read the loan terms carefullyOne of the drawbacks of taking out a consolidation loan is they can often come with loan terms that are far different than the loans you already have. Some will even be for a much longer term, and that can mean a lot more mone spent in interest and payments.
Read loan terms carefully before agreeing to anything, so you do not suddenly find yourself having to pay for many more years than you expect or want.
Have a proper strategy before you applyIf your goal in applying for a consolidation loan is to make sure you get your debts paid off as quickly as you can, you do want to be sure you have a strategy for that before you do so.
Write down exactly how much you pay out every month now in various loan payments, and then how much you would pay out with a consolidation loan were you to get one. Calculate amounts based on different interezt rates so you know what you are aiming for with lower interest rates, and then do everything you can to make sure you get them.
Also remember to stop using credit cards, shop cards and club cards once all their balances have been consolidated into one large loan. After all, if you do not, and continue to use them, you could end up on much worse financial shape than you are already.
Remember, the whole point of taking a consolidation loans is to get you in good financial shape and, ultimately, completely out of debt. It is not to put your card balances into another loan, and then free up your credit cards so you can start charging again.
What are you offering as security?When you apply for a consolidated loan, the bank will want to know what you are offering as security. In most cases, this will be the deeds to the home you own.
What this means is, should you have problems repaying the loan, you would eventually lose your home when the bank repossesses it. A catastrophe in any sense of the word, and an absolute catastrophe financially.
This is why you must be absolutely sure before applying for a secured consolidated loan that you have the means to make the payments every month. It could be very dangerous if you do not.
You must also be sure that, during the entire term of the debt, you do not incur any more debt. Not unless your imcome has drastically increased to take care of it. Otherwise, you could end up a lot worse off than when you started.
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