No matter one is hit with medical bills that were unexpected or went wild with shopping, this may appear scary in conquering this mountain of debt that is accumulated. But there is nothing to panic as countless people are facing the same situation and sharing the struggle. Debt consolidation, fortunately, can help one in scaling this mountain of debt. Such types of loans allow people to manage their debt easily by placing what they owe on the three credit cards into a single bucket. In fact, this idea is in reducing the amount one is spending for getting rid of the debt, with an aim to reduce the total monthly amount they are putting for that debt along with the interest they are giving on that debt.
Facts about Debt Consolidation Loans
One, however, should keep in mind the fact that a debt consolidation loan will not magically make their debt disappear. They still have to pay for it. The loan furthermore will not fix the issues mysteriously that one has with overspending. No matter it is a ten-year loan or a two-year loan, one should ensure to check how much they will spend over time. Debt consolidation loans, in some cases, can cost one more in the future than clearing all the debts that they owe to different lenders. A debt consolidation loan will make sense only when monthly payments, payback terms, and interest are better than one’s present debt payments. Now the question is which debt consolidation loan type will be ideal for one. Generally, debt consolidation loans are categorized into following types- loan from a friend or relative, balance transfer offers on the credit card or personal loan. To know more, visit NationaldebtRelief.com.
The Three Best Types
Though there are different types of debt consolidation loans available these days, the best three are as follows,
- Personal Loan- This is of two types, unsecured and secured loans. The secured loan needs one to put something they own as collateral, such as a vehicle. Should they fail in keeping up with their payment; the lender will seize their collateral. In the case of the unsecured loan, they will not require putting their car or other values of being taken away by the lender. As it is unsecured, one will require having a good credit score for qualifying for the same. Personal loans are accessible from credit unions, banks, for-profit lending companies, or peer-to-peer lenders. These loans will be an excellent means of consolidating debt. Most of these have an interest rate that is fixed, which means one knows when exactly they will run out of debt.
Though this debt method sounds good, one needs to be careful. This is because this form of loan has a big downside. Combining a lot of debts into a single loan may cut down the sum that one is paying on a monthly basis, yet this may stretch out the time they make payments. Therefore, it is wise in raising the amount one is paying for borrowing the money.
- Balance-transfer Offer- A good number of credit card companies provide offers to consumers promoting an interest rate of 0% as an introductory offer for a year, should one transfer a balance to the credit card from another credit card. The balance-transfer offer will be an ideal choice for consolidating debts, but in this case, one needs to have a good credit score for qualifying for the balance-transfer offer. Besides, should one fail in paying the transferred sum at the time of the introductory period, the credit card agency will then begin to charge a normal rate of interest. This indeed will be higher than 0%.
- Family and Friends Loan- Asking money from relatives or friends may be an easy means of getting debt consolidation loans, yet at the same time can also prove in being the trickiest. Often, they may charge an interest rate that is lower than a credit card or a bank, and may also be less strict regarding how long one will require in repaying the money. But the downside is, unfortunately, one will consistently be late with their payments or fail in repaying the whole amount, which may ultimately destroy their relationship with relatives or friends who provided them the money. Thus, one needs to think twice prior to choosing this option for acquiring debt consolidation loans. The bottom line is, the moment one decides in borrowing an amount from relatives or friends, they should ensure in putting their loan agreement always in writing, similarly as in the case of a bank. This written agreement should be signed both by the lender and the borrower. It will help to spell out the amount of money being borrowed, the frequency of payments to be made, the deadline to pay off the loan, the rate of interest, and the penalty to make the late payment.
A debt consolidation loan, also known as credit consolidation or bill consolidation, is offered by credit unions and banks for the chief purpose to combine one’s debts. This however varies; thus, it is crucial to choose wisely. Ideally, a debt consolidation loan has a rate of interest that is lower compared to the rates that one is paying currently. At times, the low monthly payment is attained by increasing the period of repayment. This loan will allow one in combining all their debts into one, low rate of interest loan. Merging their debts in this manner will enable them in lowering their monthly payment and making it simpler for them in affording their monthly bills. A debt consolidation loan is an excellent choice for untangling the mess which people face each month trying in keeping up with various bills from various card companies and various deadlines. Rather there is a single payment to a single source, just once a month. This loan will get to come out of debt quickly and at the same time, eventually improve their credit card.