Friday, March 26, 2010
What are Debt consolidation loans?
Many lenders offer debt consolidation loans to people who’re struggling with debt problems. These loans are particularly useful if you have a number of unsecured debts. Instead of paying them off separately, a debt consolidation loan enables you to roll all your dues into one loan payment that you can afford. In this way, you can simplify your finances.
Debt relief professionals have mixed reactions about debt consolidation loans. Some of them think it’s a good solution and others think it is another loan so not a viable option. Before going for such a loan, you should know the advantages and disadvantages of this loan. Knowing the pros and cons would help you decide whether it is right for you.
What is a debt consolidation loan?
It is a loan that you obtain to combine and pay off your various loans. If you have 4 small loans with different amounts, you can take out a bill consolidation loan and pay them through a single monthly payment. You can use this loan to pay off your creditors and you need to send this monthly payment to the lender on a regular basis. You can set up an auto debit facility with your bank to pay the lender.
This loan allows you to restructure your finances and it becomes simpler for you to accomplish your financial objectives. However, like every other option, this loan has its pros and cons. Given below are the advantages and disadvantages of this loan:
Bill consolidation loan advantages
1) Reduced interest rate
This loan typically comes to you with a low and reasonable interest rate in comparison to the aggregate of the interest rates of all your bills. This also reduces your monthly payments.
2) Fixed interest rate
These loans are offered with interest rates that remain unchanged throughout the loan duration. This is definitely safe for your finances.
3) Simple restructuring
Managing multiple loans and creditors is an intimidating task. A bill consolidation loan saves you from the hassle of missed payments and annoying creditor calls. Instead of multiple payments, you just need to make a single payment.
Bill consolidation loan disadvantages
1) Costs you more in the long run
On many occasions, it has been noticed that these loans cost you more if the repayment term is too long.
2) Risk of losing your home
You mostly take out a home equity loan to consolidate your bills. In the event of a payment default, the lender might foreclose your home.
A debt consolidation loan might not always be the ideal solution for you. If you don’t have a steady source of income, then you might face problems repaying the loan. You must weigh the pros and cons of this loan before committing to a lender. If needed, go for professional consultation.
at 10:17:00 PM