You might have reached a time in your life where Debt has overtaken your routine and has started to cut into your personal happiness. Well, that’s where CC can help and we will show you how a Debt Consolidation loan can help to ease everyday anxiety!
Acquiring a Debt Consolidation Loan!
In order for you to make the right decision regarding your current financial situation, we must first explore what a debt consolidation loan is. A debt consolidation loan offers you the opportunity to combine all of your existing debt into one single loan. This can be done with all loans, depending on your credit score. If you are looking to consolidate credit cards, however, please follow the link for the most up to date Information.
Should you already be aware of what a debt consolidation loan is and if it would prove beneficial for you, then just sign up to receive a list of creditors that provide reasonable loans and financing options. Don’t lose hope if one creditor turns you down, there are several options to choose from.
But if you aren’t quite certain about the kind of credit you want yet, then please read on. This article is aimed to go into greater depth regarding debt consolidation loans, including their pros and cons.
What is Debt Consolidation Loan?
Well, debt consolidation is a form of refinancing. It entails the accumulation of many loans into one, so you are basically taking out one loan to pay off several others. This kind of loan is usually referred to as a personal finance process, specifically used to address high consumer debt 1.
The ups and downs of debt consolidatin!
The main point of a debt consolidation loan lies in the interest rate. Lower overall interest can be secured by obtaining this kind of financing option. A debt consolidation loan for bad credit can also achieve this goal.
On top of that, it also provides the convenience of only having to deal with a single payment, which makes overseeing your financial status much more user friendly2.
It also gives the benefit of (possibly) offering more time to pay back your debts. Lenders have fixed payments, which makes this kind of service possible. It also provides you with more disposable income each month, as well as some much-needed peace of mind.
Lastly, some countries offer specific tax advantages when taking out a consolidation loan. This is due to the fact that your overall wealth will decrease, even though your disposable income rises (only in the short term if you are not careful).
But this still doesn’t necessarily mean that this kind of loan is the right one for you. There are some disadvantages to signing up for a debt consolidation loan. So perhaps, if your financial situation is too unstable, take a step back and reevaluate your position before moving on.
The downsides of a Debt consolidation loan!
Debt consolidation loans come with fees and interest. These extra fees might be constituted of expenses financing firms dumps onto you. Especially when an individual has a bad credit score but still wishes to apply for debt consolidation.
Other lenders might try to increase the interest rate to an absurd amount, so there are definitely sinkholes you do not want to fall into.
The biggest danger of a debt consolidation loan lies in the so-called “Points”. These points are no laughing matter, as one point constitutes one percent of the amount owed. Some refinancing firms have been known to charge their customers with unreasonable amounts of points.
Also, most debt consolidation loans are secured loans. This means that some of your assets are put up as collateral in case you can’t make your payments on time. The lender will be able to seize property if such a scenario takes place. In general, lenders won’t give out a debt consolidation loan if the assets of the client don’t exceed the debt owed 9.
Debt consolidation loans and personal loans.
Another form that debt consolidation loans take is in the form of personal loans. As the name implies, these loans are usually issued between acquaintances since they are, for the most part, unsecured loans.
A personal loan satisfies all the outstanding debt and offers a singular loan instead. The terms can then be renegotiated and the interest kept low, this is especially the case when family or friends are involved.
Companies and private law firms can also issue personal loans. Not only that, but they can also provide professional debt consolidation services. This includes everything from simply evaluating your position, to actually giving you a loan.
Furthermore, these companies or law firms sometimes don’t even require you to take up a debt consolidation loan. They also specialize in managing debt. This way you can just deposit a certain sum a month, and they will distribute it over all your existing debt.
That these services aren’t free should not be surprising. Companies and law firms will charge processing and counseling fees. Also keep in mind that you are entrusting these firms with all your financial responsibilities, at least when it comes to your debt. So make sure the company or the law firm of your choosing is a trustworthy one.
Budgeting after you secured a loan…
A sure fire way to stay in debt is faulty budgeting. After you secured your debt consolidation loan, make sure to redo your budget (if you haven’t already). This should now be a somewhat easier task, since most of your payments have been consolidated and the interest rate on your loans has stabilized.
The stable rate of interest can enable you to plan your budget further into the future than before. Depending on the size of your loan, 10 years might represent a realistic timeline for your way out of debt.
Student loan consolidation in the US:
There exists yet another kind of debt consolidation loan, at least in the United States. As the title suggests, we are talking about Student loans. The Department of Education can purchase existing loans from students and consolidate them, and a federal student loan consolidation is created.
This form of consolidation brings along several benefits, such as a fixed interest rate. The rate of interest on these kinds of debt consolidation loans is linked to the then-current interest rate, this rate remains fixed.
But not only is it fixed, but it stays so even after another consolidation. A student debt consolidation loan is therefore one of the most stable forms of debt out there. Like most things in life however, this rule has an exception.
Should you reconsolidate your student loan debt together with other kinds of debt, then the interest rate will change. A weighted average calculation of the combined loans will give you your new interest rate.
The new rate of interest is also based on the then-current interests. This means that the longer your student loan lies in the past, the worse the new conditions will be 4.
While student loans can be tough to pay back, especially at such a young age, one should not carelessly reconsolidate the loan. After all, the department of education is probably one of the safest moneylenders out there.
Final thoughts on debt consolidation loans:
Debt consolidation can definitely be of some use. It makes paying the debt back more convenient and safer.
It can also help you with budgeting or setting long-term financial goals. A debt consolidation loan should also be considered if you have good interpersonal connections and have access to a better personal loan.
If you don’t want to take up another loan, then that’s fine too. Law firms and Companies can also help you out with your budget and payments, for a nominal fee. This might be a little costly, but it can definitely help you save trouble in the long run.
But if you aren’t willing to pay the extra money, then you should keep your fingers off this kind of debt consolidation. Because no matter what option you choose, you will always be charged with additional fees. With the exception of the personal loan, of course.
You can sign up at this website as well and receive a list of possible lenders and debt consolidation companies. But please only apply if you are certain that you want to pursue this option.
Should you still be on the fence, then request a free consultation at one of the firms or companies. Most do offer them and they can be a great way to gain a better understanding of your current situation.
Are consolidation loans harmful for your credit score?
A failure to make payments on time will negatively affect your credit score. If you manage to pay back the consolidation loan in a timely manner, then your score will improve. Simply having a debt consolidation loan will not change your credit score.
Is it a good idea to apply for a debt consolidation loan?
That depends on your financial situation. If you are looking for easier ways to budget and for a single payment a month vs. several, then debt consolidation may be the way to go. But if you are already struggling with payments, then you might want to consider an alternative.
I cant get a debt consolidation loan, why is that?
There are usually three issues that come into play when trying to consolidate debt:
- Faltering credit scores
- Too much accumulated debt
- Not enough income
Is paying off credit card debt with another loan advisable?
Only if the loan you are taking up has a lower interest rate then your credit card. However, since a lot of credit card debt negatively affects your credit score, obtaining said loan might prove to be rather difficult.
How long until my debt consolidation loan is approved?
30-90 Days. This is because LVCs, Loan Verification Certificates, involve the transmission and processing of payoff statements, and that process takes time.
- Fontinelle, A. (November 26, 2014). “Alternatives to Balance Transfers.” Investopedia.
- Joan Ryan (14 January 2011). “Personal Financial Literacy”. Cengage Learning. pp. 292
- Detweiller, G.(December 14, 2014). “Congress Extends Tax Break for Troubled Homeowners, But Headaches Aren’t Over”. Fox Business News
- Deborah L. ( 2010). “Costs and Policy Options for Federal Student Loan Programs.” DIANE Publishing. pp. 1