Debt consolidation loan can be the ideal element for those who want to get relief from debts and want to improve their chances of getting more credit in the long run. If you were forced to take action with your debts, the possibility of consolidating debts into a single, long-term payment will be very exciting as it will reduce the monthly payment. There are many companies that will be happy to offer such a loan to people who are trying to consolidate their debts and become free of all debts within a short period of time. Such a loan can help you to improve your credit score and can also make you eligible for more credit in the future.
To apply for such a loan, you need to possess some property that can be mortgaged, be able to pay the consolidated amount, have a stable income, and be able to provide a guarantor (if asked by the lender). The amount that you need to pay per month is substantially reduced because you will stop paying interest on each debt and because interest charged with such loans is lower than the interest charged with other loans. With debt consolidation you can pay several debts with the help of one monthly payment. Debt consolidation is just one of the solutions to reduce your debts.
The desire for material things has made people have major debt problems today. Debts occur mostly due to uncontrolled expenses and when impulsive people start spending beyond their means. It is important to get rid of debts, because if you run into huge debts it can harm your financial history or you might even lose your home and other personal belongings. But every problem has a solution, millions of people have transformed their debts into a learning experience and have been able to pay them off.
Debt consolidation or debt reunification is a process that allows you to convert all your monthly payments into a single payment less than the sum of all your current monthly payments, hence the term consolidate or unify is used to describe this process, because it groups all your debts into one. In short, what you get with debt consolidation is to convert all your current debts, whether long or short-term, lower long-term debt only, and thus pay less each month.
Loans to consolidate debts usually are granted to pay any of the following debts:
Before applying for a loan to reunite all your debts you should perform the following steps:
Before signing a loan to consolidate your debts you should make sure to have clear idea about the following:
The debt consolidation loans are useful for people with high interest on their debts and those who face a lot of difficulty in making their monthly instalment payments. The main benefits of consolidating debts and applying for a consolidation loan are listed below.
Tip: Try to avoid applying for debt consolidation loans that ask you to pay very high monthly amounts or promise you a big reduction in your debt, because they are very risky.
Once you know what your goals and your options to pay your debts are, you need to know about the best option available for you. Hence, it is very important for you to understand the difference between debt consolidation and debt negotiation.
Both debt consolidation and debt negotiation have their advantages and disadvantages. Compared to debt consolidation, negotiation may seem advantageous, because it only involves negotiating your debts with creditors to avoid paying part of the money you have borrowed as it will be cancelled by the lender as bad debt.
For example, a customer applied for a personal loan from a bank to borrow $1,000. When the bank asks the customer to return the money he tells the bank that he can give them only $400 and requests them to forgive the remaining $600 as he does not have any source of income of additional funds to pay the remaining amount. At times, a creditor may accept such a request and ask the customer to only pay $400 and settle the loan as they are aware that it can cost them a lot of effort and sometimes money to recover the remaining $600. This process of negotiating debt and paying a smaller amount than required can be termed as debt negotiation.
Although debt negotiation may seem like a dream come true, it has many associated drawbacks:
You will not have to face the above mentioned problems when you opt for consolidating your debt instead of trying to negotiate lower payment amounts with the lenders. In fact, you will also be able to salvage your future chances of getting a loan or a credit card when you opt for consolidation instead of negotiation.
If you have outstanding debts to more than one creditor you should consolidate debts. If you think you have too much debt and that there is no way you can pay off your debts, then debt negotiation is the right solution for you as it will help you to avoid going bankrupt. However, it will take you years and maybe even decades to improve your credit score again. As long as you are aware that you will be able to make an instalment payment every month, you should opt for a consolidation loan and try to pay off your debts in the long run.
If you do not feel qualified to complete the process of consolidation of your debts on your own, you can hire the services of a specialized company that can offer you with the required assistance to consolidate your debt. Such a company can also assist you in applying for a debt consolidation loan.
There are times when you can easily complete the consolidation process on your own, for example, you can get a lower interest rate for transferring the balance from your multiple credit cards to a single credit card. It is called credit card balance transfer and it will allow you to enjoy paying a lower interest rate on your credit card debt. This process will also help you to consolidate your credit card debts and then make only a single payment every month. You can easily apply for the balance transfer facility on your own without seeking any professional help. But there are other situations that are more complicated and for which you may not feel qualified to consolidate your debts on your own.
If you do not feel qualified to do it yourself, you can hire a debt consolidation company.