How can a Debt Consolidation loan help you?
The word ‘consolidation’ means to combine several small things into one large unit. The practice of clubbing of two or more debts together into one single loan is referred to as
‘Debt Consolidation’. Debt consolidation loan is simply a merger of several unsecured loans into one single unsecured loan.
What are the benefits of Debt Consolidation?
Debt consolidation loan can give you a number of benefits.
- It enables you to pay off all your other loans.
- You have to service one loan only.
- This eliminates the hassle of dealing with a range of different debtors.
- You avoid struggling with the installment payments of various credit cards, loans, finances; store cards and so on can not only be confusing but time consuming as well.
- You may inadvertently miss out on a payment and end up facing extortionate late payment fees. This also adds a black mark on your credit history.
- With the help of one debt consolidation loan, you can save you time, inconvenience, and lessen the risk of missed payments and late charges.
Debt consolidation helps you to secure a fixed interest rate.
- Debts consolidation helps you to secure a fixed interest rate.
- With different debts, you have on your hands various amounts of interest payable to each creditor. Credit card and store card debts can have very high interest rates.
- With the right debt consolidation loan, you can secure a lower interest rate.
- You can obtain a secured loan against an asset held as collateral. Collateralization allows the lender to foreclose, that is, to force sale the property in case the borrower defaults.
- The risk for the lender is reduced, hence the reduction in interest rates. Paying interest on one loan rather that on several can save you money on the long term.
Disadvantages of Debt consolidation
- Please note that affordable consolidation loans can be hard to find, especially if your credit history is less than perfect.
- Secured debt consolidation loans usually use as collateral your home
- If you take out a secured consolidation loan due to the lower interest charged, and then default in repayment, the lender may foreclose and you risk losing your home
- If you opt for an unsecured loan the amount you can borrow is likely to be lower than what you need to repay all your other loans, and the interest rates will be higher as well.
Debt consolidation is advisable for people paying credit cards. The interest rate on credit cards is much larger than even an unsecured loan. Shop around for a debt consolidation loan with features like lower APR, easy repayment options, flexible terms and conditions and lesser documentation. If need be, take the help of loan consolidation experts and reap the benefits.