Whether you are drowned in debt, unable to pay your creditors, or on the verge of bankruptcy, you need to manage your finances in a better way. One option is settling your debt using a debt consolidation loan. Then, is it a good choice for you? Before we delve deeper into this article, let us understand what debt consolidation is? With it, you can get one loan to pay your multiple debts, which means you have only one monthly payment to make instead of several ones. One payment will be easier to deal with. You will enjoy low-interest rates and monthly payment while clearing your debt faster than you expect. When it comes to debt consolidation, you will clear your debt completely with no adverse effect on your credit report. Debt consolidation will make sense for you provided you spend responsibly, pay your bills on time, and understand what consolidation can do or cannot do for you.
According to an article published on HuffPost, debt settlement agencies are helpful, but as a customer, you should learn how such services work before signing the dotted line. You should figure out whether a consolidation loan is
Debt consolidation is one of the effective ways to help you dig out of your loan. However, you should consider a few things. It will not include your secured loans such as your auto loan. It includes unsecured debt such as credit card loan, bank loan for personal reasons, debts due to medical expenses, and line of credit.
Debt consolidation will not make sense unless you avoid using your credit card as well as the other accounts included in a consolidated loan. The best way is to close such accounts and cut back the use of credit cards. A few lending agencies may expect you to adhere to these rules to become eligible for a consolidated loan. To help you make an informed decision, here are the pros and cons of debt consolidation:
The Benefits of Consolidating Using a Secured Loan
Many times, a secured loan has reduced interest rate compared to an unsecured loan. This way, you save your hard-earned dollars while paying interests. Reduced rates of interest will lessen your monthly payment and areeasier to pay off the borrowed sum. A couple of times, the payments on interest are also tax deductible. For instance, interest paid on a secured loan through real estate is allowed tax relief sometimes. One monthly payment with reduced interest rate may not ease your financial stress considerably, but you can obtain secured loans easily because it has little risk for the lending company.
The Cons of Consolidation Using a Secured Loan
There are pitfalls of consolidating unsecured loans into a secured one. When you use collaterals to obtain a loan, you put your property at risk. In case, you fail to repay the loan; you have chances of losing your home, life insurance, car, and retirement fund. You may also lose any other asset that you used to get the loan. Specific assets like your retirement fund or life insurance may not be returned to you if you cannot repay the loan before you need to use these assets. Therefore, when looking for consolidated loans, make sure that you research on companies that provide easy lending terms, charge no upfront fee, or exorbitant rates of interest. Check the lender’s debt settlement ratings online and then decide. Take your time because there is no harm in buying some time before you choose.
The Pros of Consolidation with an Unsecured Loan
Though unsecured debt consolidation loans were common, you will have difficulty in obtaining them currently. Most of the time, an unsecured loan requires the borrower to have an excellent credit score. Therefore, if you have a poor credit history, chances are bleak when you apply for an unsecured loan. So if you want to opt for such a loan, you should first work towards improving your credit score. When you have a healthy score, you can get this loan without any difficulty.
The Cons of an Unsecured Loan
It is true that getting an unsecured loan is a tough nut to crack if you do not have a stellar credit report. Many people who need it may not get such a loan because they will not qualify. Moreover, the rates of interest are more than secured loans. If you are planning to use balance transfer options or low-interest credit card offers, such offers are a bit tricky. Many times, you will need to shell out a transfer fee that has a negative impact on your savings. You will also find some rules that will reduce the benefits. Again, if you want to use the card for any other purpose, the other charges may generate interest and payments are applied first to the balance that has no interest. Moreover, the low-interest or low-interest period is short. Therefore, if you cannot pay off your debt on time, you will need to pay higher rates of interest the moment the special offer period ends.
The Emotional Pros and Cons
It is true that consolidating your debt into a single loan with reduced monthly payments will give you much financial and emotional relief. It is one benefit when you are trying to settle your debts. However, it also has a flipside. It could make you feel overconfident about your financial condition. Consequently, you may start spending recklessly; apply for more loans before you pay off your consolidated debt, thus starting the vicious cycle all over again.
Conclusion You will haveknowledge of debt settlement and consolidated loans by reading online literature. Before you decide anything on debt settlement, make sure you consult with a consumer credit counselor or lawyer. When you are plagued with loans, you have many options. However, you should weigh the pros and cons of each. Read about all the options before choosing the best one. Remember a professional debt settlement company with many years of experience will offer a consolidated loan that makes sense for your financial situation.