Consolidation loans can be the rescuing hero to many financially over-extended businesses.
By: Hitesh Khan/
Your first task in deciding if taking consolidation loans is the right one for you to take in your present situation, is to gather the statements of all your loans and credit cards together and list the names, balances owing, and interest you are paying. Then you will need to determine if you could take out a loan with lower interest than you are already paying. Though the convenience of making one payment a month is tempting, there really is no point in taking out another loan for that purpose alone.
How do a consolidation loans work?
A debt consolidation loan combines your outstanding debts into one loan, which hopefully has a lower interest rate than you are currently paying. Sometimes these loans are offered to private home owners and come in the form of equity loans where your property will be held as security against the loan.
The lender will have a lien on your home until you pay off the home equity loan in full. It is essential to shop around to obtain the best rate possible. It is also clear to see how important it is to make sure your credit is in fairly good shape before you apply for one of these loans.
Although there are several different types of consolidation measures you can take, using your home to secure a consolidation loan is the fastest and easiest way most people go about solving their credit woes, there are other options.
But consider utilising a home equity loan to consolidate your other debts into one, as this can help you overcome debt and free yourself from financial prison, so to speak. You will have just one monthly payment, designed to be lower than the sum of all your previous outstanding debts.
As an additional benefit, with such consolidation loans, your lender can oftentimes pay the other debts for you with the funds from a home equity loan. When it comes to out-of-control debt, a home equity loan can be a good solution for many people. An added bonus for using this type of loan is that it is tax deductible.
Low or zero interest credit cards can offer a way to consolidate your debt, especially if you don’t own a home. The credit card companies sometimes offer low interest or zero interest loans to lure customers into signing up with their company or to coax competitors’ customers into transferring their balances.
Be aware, however, that though this may sound like a good idea, many times the credit card companies only offer this option to consumers with very good credit. Also, be diligent about taking into account the terms you are agreeing to. Here are some pitfalls to look out for:
- Read the fine print on these agreements. Note what interest you will be paying when the offer is up. If the interest is high, make other arrangements before the payoff date arrives.
- Be sure to make your payments on time. If you are late on just one payment, the credit card company can usually jack up your rates.
- Look for hidden fees and charges that can make that seemingly low interest higher than it appears.
Personal debt consolidation loans are another way to gather those unruly bills into one manageable payment. This type of debt consolidation loan bundles your existing debts together and presents you with one payment without requiring collateral such as a home. Here are some facts, pros and cons, to consider:
- As always, make sure the terms of the consolidation loan you are considering don’t add up to more than you are presently spending on your current debt.
- Because there is nothing to secure your loan, expect the lender to increase the interest they will likely charge you.
- If you have poor credit, expect to pay higher interest. The possibility of the lender turning down your loan is also higher. Shop around for rates and terms. Start with institutions you already do business with and go from there.
- You can also apply for consolidation loans at banks and other financial institutions like licensed moneylenders.
Whatever you do, remember to take a look at the habits that got you into debt before you consolidate. Paying off debts by taking out a Home Equity Loan and then continuing your old charging habits, can put your home at risk.
How to Secure Personal Loans Quickly
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