Getting Out Of Debt - Benefits Of Debt Consolidation
When we talk about something like debt consolidation it's never a bad idea to just
make sure everyone's quite clear what we mean by the term and that we all mean the same thing. We all acquire various different debts as time goes by in addition to the mortgages on our houses. People may have taken on one or more personal loans for different purposes that they are still paying off. Most will have at least one credit card balance that they're paying off month by month. Maybe that should be paying every month but never actually paying off! Add store cards and mail order clubs to the list and no doubt a bank overdraft on too and you're looking at Mr or Ms Average.
Does that sound like you, with a dog's breakfast of different debts, all with regular repayments falling due on different dates in the month? At some point you might take a long look at all this and decide that you really need to do something about this shambles. To make matters worse, on all those different debts you'll be paying all sorts of different interest rates, some of them ridiculously high even by today's standards.!
If you take up one new loan sufficient to pay off all the others, that's what we mean by, "Debt consolidation." What you'll be left with is one payment each month on one date. It is still possible that if you choose a secured loan the payment may be less than the total of all those separate payments you're making now. However people very often borrow more than just enough to cover their existing commitments to enable them to fund some new substantial outlay. If your main objective is to end up with lower repayments you will have to be careful not to overdo the additional borrowing. Don't get carried away!
There are several benefits to using a homeowner loan to consolidate your debts. First of all it's a lot tidier. You'll have one payment going out each month instead of several going to different places on different days.
Because your new arrangement is a secured loan you'll pay a much lower rate of interest than on most of the original debts. Be aware though that interest rates in general have increased quite a bit lately compared with when some of your commitments began so the savings might not be as great as they would have been a couple of months ago.
The homeowner loan you use for debt consolidation gives you another benefit in that, being a secured loan just like your mortgage, it comes with a much longer repayment term than most of the ones you're replacing with it. That coupled with the lower interest rate being charged will give you lower monthly repayments, which is good news indeed.
The not such good news is that over the whole period of the new loan the total cost to you in interest is likely to be higher than before. That means that if you add up all the repayments you'll make over the longer period the total will be more than if you left things as they are.
Of course it may well be worth that to you to bring your regular payments down to a more manageable level now and for the foreseeable future. It's something for you to weigh up and decide. No one else can make that decision for you.
Probably none of the debts you're looking to consolidate are secured on your home so it's important that you remember that a homeowner loan is a second mortgage on your property. In the same way as failing to keep up the repayments on your mortgage could result in your home being repossessed because it is the security for the loan, if you don't keep up the payments on your new secured loan, you stand to lose your home just the same.
Of course, if you're managing to keep up with all your repayments now even though it isn't easy, then with a lower repayment should actually be less of a struggle so the situation shouldn't arise. In that case you shouldn't be scared off from using a secured loan for debt consolidation. If it enables you to avoid matters getting out of control then it's worth doing now because once the situation does get away from you it'll probably be too late!
Try and find out as much as you can about any loan company you plan to use. Before you let them hold your most valuable possession as security over quite a long period of time you want to have confidence in them. Ask searching questions, you won't offend them! They understand and they'll ask you plenty of questions.
Getting Out Of Debt - Benefits Of Debt Consolidation
By: Channing Blaine
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