Repaid.org Banner Ad
 

Home / Debt / What’s a debt consolidation loan?

 

Is a debt consolidation loan right for you?

Debt Consolidation loans are cheaper than you think

debt consolidation loan allows you combine all of your credit cards into one loan with a lower interest rate and a lower overall payment. Also, a debt consolidation loan can help in that you can go from making a lot of payments to many creditors to making one low payment to one creditor each month. This can help reduce stress and simplify the repayment process.

You can accomplish a consolidation loan in a number of ways, depending on your situation, the amount of your debt, and your credit score.

If you own a home, then a home equity line of credit could help. A HELOC allows you to use the equity in your home. Usually, you can use of funds for a home equity line of credit in any way deemed usable. Home equity lines of credit are pretty easy to qualify for if you have sufficient equity in your home.

The overall lower interest rate is an advantage that debt consolidation loan offers to consumers. Lenders have fixed costs to process payments and repayment can spread out over a larger period. However, such consolidation loans have costs: fees, interest, and “points” where one point equals to one percent of the amount borrowed. In some countries, these loans may provide certain tax advantages. Because they are secured, a lender can attempt to seize property if the borrower goes into default. Personal loans comprise another form of debt consolidation loan. Individuals can issue debtors a personal loan that satisfies the outstanding debt and creates a new one on their own terms. These loans, often unsecured, are based on the personal relationship rather than collateral.

HELOC loans became very popular in the United States in the early 2000s, in part because banks were using ad campaigns to encourage customers to take out home loans, and because interest paid was typically deductible under federal and many state income tax laws. This effectively reduced the cost of borrowing funds and offered an attractive tax incentive over traditional methods of borrowing such as credit cards. However, after 2017 interest on a HELOC is no longer deductible unless the loan is used for substantial home improvement. Another reason for the popularity of HELOCs is their flexibility, both in terms of borrowing and repaying on a schedule determined by the borrower. Furthermore, HELOC loans’ popularity may also stem from their having a better image than a “second mortgage”, a term which can more directly imply an undesirable level of debt. However, within the lending industry itself, a HELOC is categorized as a second mortgage.

Should you consolidate your debt?

Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt

If you’re going to consolidate into a loan, you should understand a few things first, including the pros and cons.

Advantages of Debt Consolidation

If you’re considering a debt consolidation loan, then read on!

One payment

One of the best things about a loan is that you go from making high payments to creditors to making just one single low payment. You will feel a heavy burden lifted which can help clear a path to becoming debt free. Having less to manage will help guard against missed payments, which can hurt your credit score.

Streamlining the payment process can help you feel more in control of yourfinancial future and set you on the path to financial wealth.

Low Payments

Most times, when you take out a debt consolidation loan, the monthly payment is lower. This can help you avoid taking on new debt and start saving money. Creating a savings account can help you avoid going into debt when you are faced with emergency expenses such as a medical expenses or high car repairs.

Low Interest Rates

A goal of a debt consolidation loan is to lower your overall interest rate that you pay on your debt. This helps to lead to increased savings in the long run.

You need to be certain that a debt consolidation loan is the right choice for you by having a full picture of what your paying monthly in interest and principal, and what your new payment will be with the new loan.

Get Current

If you are running behind on household bills, a loan can help you catch up. This can improve your quality of life from living under the stress of living paycheck to paycheck or running behind on your expenses. Moreover, your credit score can be lowered when bills are late.

Advantages of a Debt Consolidation Loan

Debt Consolidation Loans have certain disadvantages. If you are not disciplined and you don’t change how you spend money, a debt consolidation loan could put you in a worse financial situation. If you aren’t careful, you could end up paying more in interest over the life of the loan.

High Credit Card Balances Again

Debt consolidation loans can help tremendously to lower overall debt very quickly.

When you hard work of paying off your debt, you learn valuable lessons. Chances are strong that you will be less likely to run up your expenses again. You can take a loan to pay off your debt and then continue to accumulate debt on credit cards can spend your way into financial ruin. You can speak with a debt consolidation counselor to learn more if a loan can help you.

debt consolidation
People characters and debt consolidation
 

About the author: OnCore Leads

 

 

Recent posts in Debt

 

Leave a Comment

Your email address will not be published. Required fields are marked *

CommentLuv badge