Understanding The Benefits Of A Debt Consolidation Loan

Understanding The Benefits Of A Debt Consolidation Loan

If a person faces a hard time making payments for multiple numbers of unpaid credit bills, mortgage payments or utility bills, he can opt to take a debt consolidation loan. In order to take a consolidated loan, a person needs to do negotiation with the creditors. With this option, all the old bills will get replaced by a new consolidated loan, with lower monthly payment and reduced interest rate. According to recent market survey by Charge Card Index, the numbers of credit card delinquency rates have improved, as more people are opting for debt consolidation services. With a debt consolidation loan, the penalties for late payments and over limit charges can also be waived off. For negotiating with the creditors, it is better to take help of a debt relief company. The company representative can strike a better deal as he has more professional experience. Types of debt consolidation loans The two main kinds of consolidation loans are as follows- * Secured loans: A secured loan is that type of loan that requires collateral. Usually to reduce mortgage costs, the homeowners take this loan or refinance their existing mortgage, with a new one, at a lower interest rate. However, if the borrower cannot repay the new loan, his property may be taken away by the lender. * Unsecured loans: The unsecured loans are the personal loans. The interest rate on this type of loan is higher than that of the secured loans. But, most people prefer to take this loan, as there is no risk of losing their property, in case they fail to make repayments. Advantages of consolidation loan The benefits of taking a consolidation loan are- * Single payment: Instead of making payments to multiple creditors, a borrower has to make a single monthly payment. This helps him to keep track on the payment. * Reduced interest rate: Generally, in most cases, the consolidated loan is a secured loan or a home equity loan. So, the interest rate is much lower and the monthly repayment amount also gets reduced. It enables the borrower to save more on his repayment amount. * Tax benefit: The borrower will get tax deduction for the interest he will pay towards his mortgage, with the new consolidated home equity loan.

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