Debt consolidation involves taking out a single loan combining your existing multiple debts so that you need to make just one monthly repayment at a specified interest rate. There are numerous options for consolidating your debts. You may opt for debt consolidation on your own or you may seek professional guidance and assistance from a reputed debt consolidation company. You must necessarily know some important facts about a debt consolidation loan to determine if at all it makes sense to opt for it in your particular financial situation.
Here are some debt consolidation loan facts.
1) A debt consolidation loan would be working best for people who are capable of paying their bills. A debt consolidation loan may provide a great respite for individuals who need to juggle multiple bills, multiple interest rates, and several payment due dates in a month. Those individuals who cannot afford to make the minimum payments, or people who actually have bad credit, may not get any advantage from taking out a debt consolidation loan.
2) Do not consider borrowing any amount against your home. Do not opt for a home equity loan for consolidating your debts. Do not ever consider refinancing or even borrowing money against your home as a way of consolidating your debts. You may be at a risk of losing your shelter if you fail to make the necessary monthly repayment. Whenever you start defaulting, your home would be taken away as a security. Browse through reliable sites for perfect solutions.
3) Initially, balance transfers could seem to be pretty lucrative but it may prove to be risky later on. You could consolidate your debts by transferring the debt to a low-interest or zero percent interest balance transfer credit card. This could be working if you are having a good credit rating. Remember the low interest rate or 0% interest will not be lasting forever and the rate is bound to go up once the introductory offer would expire.
4) Debt consolidation may seem to be cost-efficient at the time but it may prove to be more expensive over a period of time. You may find that there are some consolidation loans that require lower payments simply by spreading out the payments over an extended period of time. This may seem alright initially. However, you may end up paying much more in terms of interest over the loan life term.
5) Stay away from frauds and fake lenders. You must be doubly cautious before providing all your personal details and relevant information to the online lenders. You must not consider responding to emails sent from certain personal email domains. Always make sure before responding to any email that it comes from the official domain of the company. Check if the website is secure before you start entering your personal and financial details.
6) Debt consolidation is not meant for everybody. If you are burdened under excessive debts you may not be eligible for a debt consolidation loan. Moreover, if you are scared that you would not be able to repay your debt, it is best to try out some other option.
A debt consolidation loan is taken out to buy an ultimate peace of mind and to lead a stress-free life with no major debts to worry about. However, you must remember that debt consolidation is not responsible for changing habits. Debt consolidation effectively simplifies payments but cannot directly address issues of poor budgeting and overspending that are often the root cause of the debt issue. It is important to pledge to modify your lifestyle and cultivate the habit of living within your means.
By Marina Thomas
who is a marketing and communication expert and helps clients in long term wealth plans.