Probing Deeper Into Debt Consolidation Loan To Make An Educated Decision

Probing Deeper Into Debt Consolidation Loan To Make An Educated Decision

Since the credit bubble burst in 2008, the figure of consumer debt in America has touched an all-time high of $12.7 trillion. This is a milestone that has surpassed all previous records indicating how the economy is growing.

  • It has also restored the confidence of the consumers in banks.
  • This eventually means that people now feel more comfortable to borrow money.

However, the growing economy has nothing to do s such with debt as more and more people are found to be struggling with their debts to pay them off. It is all due to the high rate of interest and a lot of fees that comes along with a loan in all shapes, sizes and forms.

  • This eventually forces the borrowers to fight with their debts and leave them with no other alternative but to make only the minimum payments every month.
  • As a result, this causes the accrual on interest and fees further to their outstanding debt amounts making it skyrocket through the ceiling and unmanageable for them.
  • This way they end up in a cycle of debt which inevitably has an extremely negative effect on their life and finance.

Besides that, they cannot afford to have even the smallest of luxuries as their financial situations continue to become dire so much so that a time comes when they cannot afford to have even the basic necessities.

It is during these times people tend to make wrong decisions and take drastic measures to get rid of their debts. Few consider settling their debts for a lower amount with their creditors and other consider filing for bankruptcy in order to get some relief. However, both of these approaches harms their credit score even further affecting it for seven to ten years!

However, if you go through the options available at you will find that there is one better way to get rid of your debt, or in fact multiple debts: taking out a debt consolidation loan.

This surely is a much better option and a more effective solution to get some relief from your debts due to its useful and beneficial features such as:

  • It will reduce the number of your debts rolling the into one
  • It will reduce the monthly payment amount making payments easier
  • These loans come with a lower rate of interest which is much lower than the average rate of interest of all your loans taken together
  • It will be easier to keep track of your payments now that you have to pay one monthly bill to one single creditor and most importantly
  • It will have a far less negative effect on your credit score and credit history.

Therefore, when you have too many outstanding loans that are keeping you awake at nights, consider taking out a debt consolidation loan.

About debt consolidation loan

A debt consolidation loan is one of the most popular ways to manage debts because it helps borrowers in a lot of ways when it comes to multiple outstanding loan repayment that seems to be overwhelming to deal with.

Though these loans are not designed to help and offer you with an overnight solution, these will surely help you in handling your debt and money reducing your woes definitely making it easier for you to repay your debt and move ahead.

You have a lot of options to choose from as debt consolidation comes in many different forms but the core idea of all is the same: to make many debts into one.

Unsecured personal loan:

The most common form of debt consolidation loan is an unsecured personal loan. The features of this option are:

  • You approach a specific lender
  • Apply for new debt consolidation loan
  • Take out an amount that is equal to the total amount of your outstanding debts
  • Use the amount received after you gain approval to pay off all of your existing debts at once.

Once that is done, you now focus on paying down the new debt consolidation loan which is easier now with one payment, low interest and lower monthly payment.

Balance transfer credit cards:

If you want to roll all your credit card debts especially you may consider another good option which is the balance transfer credit cards. In this option:

  • You apply for a new credit card
  • Make sure that it has a low introductory APR or Annual Percentage Rate offer attached to it
  • Use this new card to repay as much of debt as you can and

Then pay down the money used in full before the introductory period is over and the high rate of interest kicks in.

Debt settlement or debt management:

You can also choose debt settlement and debt management if you are not very keen on consolidating your debts. In this process you will work with a third-party company. This company will help you manage and eliminate your debts as fast as possible. These companies follow different approaches for that matter but since they will ask you to pay them instead of your different creditors and in turn pay them their dues, their service also falls under the broad umbrella of debt consolidation.

No matter whichever form of debt consolidation you opt for, the outcome of each is similar.

The final thought

You will ideally save on a lot of money in the process both in the short as well as in the long terms. That is why debt consolidation is so popular option amongst borrowers who want to get rid of their debt.

However, at this point you should know that debt consolidation will not make your debts go away by it. It will typically make your debts more manageable. Moreover, it too has its pros and its cons as does any other financial decision.

The pros may sound excellent but the cons are equally worrying. If you have a bad credit you may not qualify for such loans and consolidating debt your debts will not treat the underlying issue: your bad spending habit which you have to change yourself.

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