Month: January 2017

What You Should Know About Debt Consolidation Loans

Are you drowning under a mountain of debt? Are you getting annoying collection calls? Would you like to eliminate the worry and stress that comes with overwhelming credit card debt? A debt consolidation loan may be able to do just that-relieve the anxiety that comes every month when you receive your credit card statement. However, if not managed properly, a debt consolidation loan can be a double edged sword.

Most debt consolidation loans are secured loans. This means they are secured with some type of collateral, usually your home and if you default on the loan the credit issuer has the right to take whatever you put up as collateral. So, you will to make sure that you will have no problem making the payments on your debt consolidation loan. If there is any doubt as to whether you can make the payments, you will want to consider a different type debt relief solution.

There are advantages and disadvantages to a debt consolidation loan. The advantages are:

Reduced monthly payment. Your payment will likely be less than all your monthly credit card payments when they are combined.

One monthly payment. Instead of having several credit card payments each month, you have just the payment on the debt consolidation loan.

Reduced interest rate. Depending on your credit score, interest rates on debt consolidation loans can vary from 6%-10%. Most credit card interest rates are greater than 10% and many are double or triple that amount.

Tax deductible. In most cases the interest paid on the debt consolidation loan is tax deductible.

Peace of mind. If you have been receiving collection calls, these will stop. If you have been juggling and trying to remember due dates for numerous monthly payment, this will also be gone.Now, let’s take a look at the disadvantages of having a debt consolidation loan:

The loan is secured. If you default on the loan, your creditor will foreclose on whatever property you have put up for collateral.

Repayment period. This period can be anywhere from 5-30 years, but you can pay it off early if you financial situation allows.

Available credit. After paying off several credit cards, you will likely have plenty of available credit. If you start using your credit cards again you will end up with a debt consolidation loan payment and credit card payments and could easily end up with financial problems and limited options for dealing with the resulting debt.A debt consolidation loan is a widely used option for dealing with credit card debt. It is best to evaluate both the good points and the bad points of debt consolidation loans before deciding if this type of loan will help your debt situation. You should also examine the reason that you have excess debt. Unfortunately, not all debt can be avoided. If you have avoidable debt, you will need to make some changes in your spending habits to prevent having future debt problems. For many people, a debt consolidation loan is their answer to dealing with overwhelming credit card debt.

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