Debt Consolidation Loans: The Basics
When you have a few different loans to pay off, and they’re all coming from different lenders at different times of the month, the difficult part about paying your debts might not have anything to do with the actual money
you have to pay. The one thing that could really be giving you trouble is simply the confusion behind so many different bills. Between student loans, car loans, mortgage payments, you really don’t have much of a choice other than to open multiple lines of credit to pay for these things. Add on another credit card or two, and even if you do
have the money to pay for it all, it gets pretty easy to miss payments.
This is where a consolidation loan could really help. If you choose to manage your debts with a debt consolidation loan, it does
mean that you’ll be taking out another loan -- but don’t let that scare you. To put it as simply as possible, this loan is just one really big loan which you’ll use to pay off all your other (smaller) loans.
You should also be aware that taking out a consolidation loan doesn’t look particularly good on your credit history report, especially if you have a history of missing payments and/or if your credit score is already low. A consolidation loan might
make it more difficult to take out a loan in the future because it could
indicate that you aren’t very financially responsible -- but again, this isn’t always the case, and creditors know that everyone’s financial situation is different.
Consolidation Loans: Your Options
What are the benefits of a debt consolidation loan?
First, there’s the convenience of only having to pay one creditor. Rather than managing a bunch of small bills throughout the entire month, you’ll only have one bill to pay, one lender to deal with, and one interest rate of keep track of.
And speaking of interest rates, that’s the second benefit of these loans: usually, the interest rates on debt consolidation loans are much lower than those on regular lines of credit. And last but not least, if your finances seem to be heading downhill and your current (multiple) creditors are started to get frustrated with you, a debt consolidation loan will allow you to pay off all those previous debts and get the creditors off your back.
Who can benefit from a debt consolidation loan?
There aren’t specific rules regarding who can and cannot benefit from a debt consolidation loan, but it tends to be most beneficial for anyone who is just starting to struggle with finances and doesn’t anticipate that the situation will get better anytime soon.
These loans aren’t considered settlements and you won’t be reducing the original balance of your debts at all, but moving your debts to another, single line of credit that has a lower interest rate will definitely save you money in the long run. This type of loan can also save your credit score because you’ll be able to pay off any creditors with whom you have debts, and they won’t feel a need to report you to a credit agency.
Although taking out a consolidation loan isn’t always the best idea, experts usually agree on one thing: if you’re deciding between bankruptcy and a consolidation loan, a consolidation loan is always
the better choice. Debt consolidation loans are inherently risky, but if you’re aware of these risks and you feel confident that you’ll make responsible decisions after consolidating your debt, then a consolidation loan might just be the right choice for you.