Below, we are going to explain what a debt consolidation loan is, how it works and what are the different types of debt consolidation loans that you can take advantage of.
Money has always been something to think about. Whether you are a kid wondering how much nickels you have in your piggy bank and how much can you borrow from your mom’s wallet to buy ice cream, or a teenager borrowing money from your classmates to buy cigarettes, or an adult trying to raise a capital to start a business, or simply trying to manage monthly bills or student loan repayments, money is pretty much on everyone’s mind.
The truth is that as we get older, we understand sooner or later that life is very expensive and sometimes money just is not enough. Nowadays, our lifestyle necessities require as to have a house, a car, a good education. All these things may not be possible without getting financial assistance in the form of a loan.
This is why so many people use the services of the loan lending industry as a way to deal with emergencies, such as making their way through college, start a business or buy a house. With so many different loan options out there, sometimes it is easier to lose track of what and how much you need to borrow which leads to more serious financial problems. Luckily, there is a way for people with multiple loans to get their finances back in order and make their lives a little easier. The way for them is by consolidating all their current debts into one single monthly payment.
Simply put, a debt consolidation loan is a loan you borrow to pay off multiple smaller (usually unsecured) debts. When consolidating all your current debts, your debts are being cumulated into one single, larger, loan with usually more convenient terms, like lower interest and smaller monthly payments. Debt consolidation loans are a great way for handling credit card debts, student debt loans, and many other.
However, if you are thinking of going for a debt consolidation loan, you should not forget to carefully read the fine print, as there might be hidden fees that can make your situation worse than before consolidating. There is a chance you may even end up owing more money and repaying them for a longer period of time. With that being said, debt consolidation can really help you regain your financial stability if you are careful with it.
There are a number of ways that multiple debts can be combined into a single monthly payment. You can consolidate all your credit card payments into one, new credit card. This will be a viable option if that credit card has no interest or charges little. You can also utilize an existing balance transfer feature of a credit card. The most common approach when consolidating debt is taking out a debt consolidating loan. You basically take out a larger loan to pay off all your other loans, after which you only need to make a single monthly payment for your larger loan.
You can get such loan from a debt consolidation company or from your bank. Normally, debt consolidation loans have lower terms than most smaller loans you may be currently repaying. The rate on your debt consolidation loan will be lower if you use a home equity loan. However, you should keep in mind that by using a home equity loan, you will be risking your property if you fail with your payments.
There are a number of debt consolidation loan types that you can choose from. Let take a look at some of them:
The home equity loan is a loan where you take out the amount of money that you want by using your home as a collateral for your loan. To do that, you normally need to have a good equity amount in your home and a rather good credit to qualify for this type of debt consolidation loan.
With home equity loans, you get a lower interest rate compared to most debt consolidation loan types, however, that lower interest rate comes with a price. With a home equity loan, If you fail to make your payments on time, you will be putting your home at risk. That is why, using a home equity loan may not be the best idea for many borrowers. You have to be absolutely sure that you can afford to make your monthly payments as losing your home is probably the last thing you would want it to happen to you.
You may be able to use a personal loan as a debt consolidation loan if you are able to borrow a big enough loan amount. Personal loans are unsecured loans where you have a fixed monthly payment over a scheduled time period.
Once your personal loan request has been approved, you can use it to consolidate all your current debts. Getting your personal loan request, however, may not be easy, especially if you have a poor credit score. If your request is approved with you having a bad credit score, it will most likely mean that you will have a higher interest rate on your personal loan.
Traditional debt consolidation loans are designed to help you deal with all your current debts by combining it. You can usually get a debt consolidation loan from a traditional loan lending institution such as a bank or a credit union. Usually, debt consolidation loan has a lower interest rate, but their terms can vary from one to another so it is important that you do your research before signing any loan contracts. You should know that in some cases, a lower monthly payment may mean a longer repayment period, which is not something you may want.