Debt Consolidation Loan – Reasons Why You Should Get One
In simple terms, debt consolidation is essentially taking out a loan from a bank or a specializing company, paying off multiple debts, and then repaying the debt consolidation loan to the lending company. Although it may sound like unrealistic to transfer several debts into one monthly payment, people manage to do it and experience several advantages in doing so.
The first and most obvious advantage of this strategy is that it is possible to cut many payments into a single lump payment per month. Rather than paying three or four different companies each month, an individual can simply pay off the lending institution. The accounting is simpler and there’s the added relief by sheer virtue of the fact that there’s a reduced number of payments being made. With a single payment, it becomes easier to plan and save for other things while getting rid of debt at the same time.
A second benefit of this loan is that monthly interest payments can be dramatically reduced. With credit card payments, interest rates can be very high. In many cases this is what will prevent a debtor from making progress on the actual debt. Consolidation lowers interest in part because the payment is now being made on a single loan from a bank or other lending institution. Typically bank interest rates are not as high as those on credit cards. The other factor that’s lowering the interest being paid is that the single payment is going towards a single creditor.
If that is not enough, the possibility of extended terms can further drastically reduce monthly payment. Compared to other types of debt, a debt consolidation loan will give more time to repay. By moving the deadlines, monthly debt payments can be substantially lower than by paying multiple creditors separately.
Another advantage is avoiding bankruptcy. Although in certain cases filing for bankruptcy is necessary, a debt consolidation plan can help many avert this process. Some banks and companies will negotiate with creditors and come away with better terms. This can help in developing peace of mind and a more affordable living situation. Budgeting is easier with a debt consolidation loan in place.
Although there are many benefits to taking a debt consolidation loan, there are a few things to be aware of before applying. First, know that this type of loan is similar to most in that it in order to qualify several things must be in place. The good news is that the bank or lending institution will not expect stellar credit. But even so, there will likely need to be a co-signor.
If an applicant owns a house or property that can be used for collateral, this is of course better. The lending institution would also need proof that the applicant is capable of paying. A pay stub as evidence of employment is pretty much standard while the rest of the particulars depend on the bank or service being applied to.
Secondly, despite lower interest rates and more time to pay up, it is possible to end up paying more than the initial debt. A financial undertaking of this nature should never be taken lightly, but for all the benefits that this could entail, it doesn’t hurt to consult with a lending institution about the possibility.
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