subject: Debt Consolidation Loans for You [print this page] Introduction Introduction
Expenses that exceed your income become debt. Repayment of these loans can become a challenge. Sometimes, you may have to resort to taking additional loans to cover the existing ones. In such cases, an individual needs professional advice from debt settlement companies or debt consolidation companies. Financial advisors often offer an option of debt consolidation loans.
A debt consolidation loan covers all the debt you have acquired. The idea behind a debt consolidation loan is to merge all your loans and credit card debt into a single loan. What is the benefit? Instead of paying separate debts to individual creditors, you can make a single payment to the debt consolidation company every month. The debt consolidation company then makes the payments to your creditors.
There are various forms of debt consolidation loans. It is important to determine which one suits you the best. A debtor should consider his needs and requirements before applying for a debt consolidation loan or plan.
To make a wise choice, it is wise to seek debt management credit counseling. When applying for a debt consolidation loan, it is important to consider the following
Life span of a loan
Payback amount in gross plus interest
Fixed monthly payment
Effect on credit rating
After a thorough analysis of these factors, you can consider the types of debt consolidation loans available
Home Equity Loans
If you have enough credit and a fair amount of equity in your home, a home equity loan is an option. Though the interest rates are lower, your home will become a part of your credit card debt. Hence, this option is not usually preferred unless fixed payments can be assured.
Credit Card Balance Transfers
This option involves transferring all of your credit card balances to a single credit card. Although the interest rates are lower, they tend to expire after a certain period of time. If you are interested in this option, consider the life span of the low interest rate. Credit card balance transfers can also affect your credit score.
Personal Loans
Personal loans are unsecured loans with fixed payments over a period of time. Approval of personal loans depend on your credit rating. If your credit rating is good, your application will be approved. A bad credit rating could result in a personal loan with a high interest rate or sometimes no approval at all.
Remember that a debt consolidation loan is not a solution for getting rid of your debt. It is just a way of merging and organizing your payments so that it becomes easier to make a single payment instead of many. Choosing the wrong type of debt consolidation can become troublesome. Debt management counseling is a must. Consider your requirements and choose wisely.
