As stated by www.forbes.com, 43% of adults carry debts. Taking a loan is not a new and innovative concept within the money market. Numerous people are responsible for dealing with both the secured as well as the unsecured debts at every moment in their life. However, the fact that people tend to get confused when they are taking any money-related decisions is also obvious. For instance, individuals who have bad debts constantly think about what they are going to do in order to recover or what steps should be taken in order to get rid of the multiple debts. In this case, debt consolidation is probably the one and only solution that can help you out.
Consolidating your debts mean that you are indicating a single debt as opposed to multiple debt amounts. It is the brand new loan, which you are going to take in order to clear the various other loans, which you have already taken. Generally, a debt consolidation loan is used for financing the non-asset debts, like the bills of credit cards, loans of the students, numerous medical expenses, payday, and more. One advantage of using debt consolidation loans is the idea that you are basically signing one important check at the end of each month as opposed to numerous checks to all the creditors. This is probably one of the best ways of getting rid of the burden that you have been facing all these years.
How is it going to work for you?
The most important thing that you need to have knowledge about is that the entire process associated with consolidating your loans is not going to bring up the total money, which you owe to the creditors. It is only one loan, which is going to assist you in repaying the various other loans that you have. There is only one creditor. You have to clear the amount to this creditor at the end of every month, and the creditor will be responsible for taking care of all the existing loans, that you have, for the entire month.
When consolidating your debts, you have to repair the entire credit along with the rates of interests, like various other debts. Therefore, you should be ready to consolidate the debts, especially if you have the interest to repay the entire debt amount. Another important thing that you have to consider is that debt consolidation is into unsecured debts in comparison to the secured debts. The payments of your credit card, rent payments, utility and medical bills are covered by a debt consolidation loan while the auto loans and the home loans are going to be troublesome when they are coming up with collateral.
If you are ever unsure of how this can help you, then a good place to start is to complete a consolidation loan calculator online and take a look at the results. It will give you an estimated rate, as well as how much you can expect to pay on a monthly basis in order to repay the loan. You can utilise this tool to see how much you would need to borrow to pay off all your debts in one go, or pay off a few in order to make it a more manageable monthly expense.
Kinds of debt consolidation loans
Given below is a list of the kind of debt consolidation loans you should know about.
Debt consolidation with the help of secured loans
Consolidating the unsecured debts into a single secured debt is a good idea. This can be done by taking mortgage loans, loans against the property, equity, life insurance policies, etc. The benefit of deciding to take the secured consolidation loans is the fact that you are going to pay a lower rate of interest. The reason behind this is that the loan is not only secured but it is also responsible for reducing the risk, which is involved. This is going to make it even more affordable. Moreover, if the loan is against any real estate, you are also going to get the tax deductions.
Debt consolidation with the help of unsecured loans
You can be assured that this option is also good for consolidating your debts, especially, if you are not interested in pledging the collaterals. This is definitely one of the most common methods of consolidating the debts. Banks are responsible for offering the unsecured consolidation loans, at a low rate of interest. However, before you are going for it, it is crucial that you check whether they are going to provide the offers of a low-interest rate or no rate of interest at all for the very first month. You should also know if any other kinds of offers are there. The advantage of an unsecured debt consolidation loan is that the collaterals are not going to possess any risk.
Personal loans as debt consolidation loans
You can also opt for the personal loan as the debt consolidation loan. It is completely unsecured and it is going to be easily available to you if you visit any bank. The things that you have to keep on your mind include:
- You are not going to require any collateral.
- You will not have to give anything at all as security.
- You can repay through EMI.
- You are going to get flexible offers.
Advantages associated with the debt consolidation loans
Given below is a list of the advantages, which are associated with the debt consolidation loans.
- You are going to worry about a single payment scheme only.
- You are going to get the option of consolidating at low rates of interest in comparison to the previous loans.
- You will be able to save a lot of money.
- You are going to get the time period of almost 2 to 5 years for clearing the loan amounts.
- No extra charges or fees are involved especially if you decide to borrow money from the traditional banks or the credit unions.
- Lastly, you can be assured that the debt burden is going to be lifted and you are going to get peace.
However, if you think that debt consolidation is not for you, you can also go through the debt settlement ratings, which are available.
Myths and truths associated
There is no denying the fact that debt consolidation is extremely attractive. If you decide to follow the myth that you should select debt consolidation because it is going to make you pay less money, you need to understand that the truth is something else. Debt consolidation will help you to convert all the loans that you have into one loan. You also have to clear the complete debt by paying tiny amounts at the end of every month. Without knowing the reality, which is associated with debt consolidation, you should not consolidate your debts.
Conclusion
Debt consolidation is ideal for you if you have been struggling to clear your debts and get out of the situation that you are in. However, you need to know everything about a debt consolidation loan, before understanding if it is going to be wise for your situation.