Debt Consolidation Loans

What is a Debt Consolidation Loan?

When you are buried under loans from several lenders, your life becomes a constant run from one lender to another. You need to pay interest and installments on time to each of them. What if you only had to deal with one lender? If this could happen, life could be much easier, despite the fact that you would still be under debt and need to make monthly payments.

This is the entire concept of the consolidation loan. You consolidate various loans into a single loan and deal with only one lender. The money that you receive from this loan is used to pay off your other creditors.

What are the Benefits of Debt Consolidation Loans?

The advantages of this loan are that they are unsecured and come with a lower interest rate. If you want interest rates to be lower, you can pledge one of your assets against it. Mainly, these loans are used by people to gain better rates of interest. If the term of the loan is longer, your monthly repayment amount reduces even further.

Consolidation loans are useful when you want to wrap up your payday loan cycle. Since interest rates on payday loans are very high, you could use consolidated loan facility to ease yourself of the burden. However, in order to gain maximum benefits from these loans, you should make sure that you choose the right loan that fits your requirements.  One very useful facility is student loan consolidation. These loans come with lower rates of interest. What is more, these loans reduce total debts as well by negotiating with other creditors.

Debt Consolidation Loans could be Dangerous

Consolidation loans can be dangerous if the borrower is not disciplined. Although all loans are consolidated into one and interest rates are much lower, it does not rid you of loans. For example, you can use a consolidation loan to repay all your credit card outstanding. The problem begins when you start using the card again and begin to pile up another debt. Indiscriminate use of credit cards will leave you with two major debts – consolidation debts and the second credit card debt. So, if you plan to take a consolidation loan, you need to exercise restraint and alter your lifestyle.

Conditions when Debt Consolidation Loans are Effective

In some circumstances, debt consolidation loans are extremely useful. The major situation is, of course, when you are burdened with several loans. In addition, this loan could prove very useful if you pay high rates of interests for several of these loans. By repaying them, you can ease a lot of burden on you and revert to paying one loan with low-interest rates. Since you can stretch your repayment period over longer durations, you can reduce monthly installments.  This is not possible if you deal with several creditors.

Important Considerations about Debt Consolidation Loans

Unless you are aware of the repercussions of consolidation loans, they can lead to several bigger problems. Here are important things that you must always bear in mind before and after you take this loan

  1. Firstly, you are not free of debt. You have only got more time to repay all your debts. You have to repay the money that you own in due course of time.
  2. Secondly, you do not owe any less than you owed before taking the loan. The only thing that reduces is monthly installments and not the principal amount. In case, the consolidated loan lender negotiates with your other creditors and gets the loans reduced, the reduction will only be in terms of interest and not for the principal amount that you first borrowed. So, you should not start binge spending after you take this loan.
  3. Thirdly, total interest amount could be higher because you repay over a longer duration.

If your consolidated loan is secured, you should remember that failure to repay can cost you the pledged asset. For example, if you default on your credit card loan, you don’t lose your home or car. But if you default on a secured consolidated loan, you could lose your home or vehicle.

Tips for finding the best debt consolidation loans

You can secure debt consolidation loans from several sources. So, before you decide on one, you should consider all your options and analyze each of them to see which one can get you the best deal and make sure you have a good job!

Some good options that you have are known credit unions in your city, banks, borrow from an individual lender and online debt consolidation programs. You can also look into the option of student loans. These are available for students and at a low-interest rate. If you choose online channels, make sure that they are reliable and keep up their contracts. The privacy policy is one aspect that you should ensure before liaising with an agency.

Tips for managing money post debt consolidation loan

The most important thing is to stop spending for anything other than necessities. Luxuries can wait. Lock up your credit cards and forget that you have them. Thirdly, do not take any other loan, including payday loans, for any purpose. Prepare the budget for every month and stick to it. Experts also suggest that before you take a loan, you should make a frugal budget and follow it for a couple of months to see if you are able to follow such a lifestyle. This is important because you cannot begin to spend without calculations after you take a loan.

Paying your installments to debt consolidation loan should be your first priority after the basic expenses have been taken care of. If possible, think of another source of income. You could either take up a part-time job or look for an opportunity online in order to supplement your income.

Make sure that the priority of your life is to get out of debt as soon as possible. Sacrificing certain aspects of your lifestyle could be very much necessary, but make sure that you take the first step towards getting out of debt. Nothing is more enjoyable than a life in which you don’t owe anyone any money.