Whether you’re thinking about debt consolidation, your stomach is probably turning from the anxiety and stress. However, choosing the right one debt consolidation loan for your situation can help you feel better about your financial situation. Before you decide on financial institution’s loan to accept, you need to realize the positive and negative aspects of a debt consolidation loan
You could use a balance transfer credit card or a home equity line of credit as well. While you may think it’s a bad idea to take out another loan when you’re already feeling the financial pinch, the right loan could mean lowering your monthly payment and interest rate.
Debt consolidation programs and program provide debt consolidation offer their service for a price. So, if money is a concern, you can always do your own debt consolidation without paying anyone a fee (perhaps to yourself). You can also get assistance from a reputable credit counselor at a nonprofit agency.
Positive Aspects of Debt Consolidation
One Payment, One Lender
If you have a lot of creditors you’re having problems paying, getting the funds from one lender and paying them all off may be your best option. You can spend your time paying off a single loan instead of multiple ones.
Lower Interest Rate
If you have a credit card with a 15 percent APR, you could get a personal loan for much lower. Many personal loan lenders provide loans at 10 percent or less interest rates. Make sure to look at the loan company’s origination fee. When looking at the APRs, also look at the rate and the origination fee.
You Set The End Debt Date
With credit card debt, there’s no end to the debt. You could make monthly payments that go on and on. With debt consolidation, you can pick the fixed repayment terms with a plethora of repayment terms. Most of debt consolidation loans must be paid off in five years. The longer a loan term is, the more interest is paid.
Negative Aspect of Debt Consolidation
Possible Co-Signer If Less Than Ideal Credit
Getting a debt consolidation loan with a low rate means having great credit. And, if you don’t have great credit, you could need a co-signer to help you be approved for it.
Debt Cycle Prolonged
While an unsecured debt wipes out the other debt, you still have to pay off the new debt. If you want to break the cycle of debt, you need to cut up the credit you use and look at your spending patterns.
Most people tend to go with a debt consolidation over a bankruptcy, as it keeps them in control over the financial situation. A debt consolidation loan can help you make the repayment process much easier. You also have a date that allows you to be debt-free, but it’s not a process that works for everybody.
If you feel optimistic that your financial situation is getting better and feel a debt consolidation loan can only help you improve it further, then this may be what you need to get out of debt. The best way to know what your financial situation really is is to talk with a credit counselor who can provide you with a better sense of your finances. Decide for yourself if a debt consolidation loan makes sense. And, if it doesn’t, then you may want to a debt management plan.