Debt consolidation loans can help eliminate debt and bills.
What exactly is a debt consolidation loan?
A debt consolidation loan is a type of personal loan that you can get from a lender, financial institution, or bank to help pay off your current debts and bills. It will combine all of your outstanding bills, including medical and credit card debts, and it replaces them with a single loan. In order for this to be an effective solution the new loan needs to be issued at a lower interest rate, even if is is just a slight difference. It is one of the many effective solutions that should be explored by anyone who is trying to get back on track. The loans can potentially offer debt relief and assistance to people that are struggling and that are trying to improve their overall financial condition. Banks and lenders are also more willing than ever before to provide help to consumers and allow them to cancel debt.
Can a debt consolidation loan really free me from my debts, such as credit card and medical?
Absolutely. While it can, it is very important that the new loan has a lower interest rate and that you stay within any guidelines that come with it. A debt consolidation loan will only take care of your financial problem if you stop spending on foolish expenses. People will need to spend wisely, within a budget, and stop overspending. If you do not manage your budget better then this will not solve anything. It could be very possible that in two or three years you will just find yourself having the same problems and running your credit cards and bills up to the same levels that they were before you took out the debt consolidation loan.
What are some of the types of debt consolidation loans?
They can be either secured or unsecured loans. If you have a secured loan then you will have to place collateral with the bank or lender in order. They will in effect force the borrower to do this in order for them to get the loan. Many borrowers will use their home or an automobile as security to take a loan. So these obviously tend to be higher risk and consumers should be very cautious before deciding to take out a secured loan.
On the other hand, unsecured debt consolidation loans do not require the borrower to use any collateral. So these come with much less risk. These loans are based entirely on the capacity, past payment practices and the character of the borrower to repay the loan.
Is a debt consolidation loan right for me?
If you have the challenges below, then probably yes. If you are not certain, then talk to a non-credit counseling agency for advice. More non-profit credit counseling.
- If you are having difficulty paying your outstanding debts or are struggling with bills.
- The current debt you have has different interest rates, oftentimes high rates. It can help people who would like to have one interest rate, usually lower, for all your debts.
- If you are currently paying multiple loans for different expenses from different lenders, and if you are having problems in staying organized and sending checks to the different creditors at different dates.
- You want to lower how much you pay on interest each month for your debt.
- If you want to pay off higher interest rate credit cards and debt by leveraging your homes value.
What do I need to have to qualify for a debt consolidation loan?
- You must have a fairly steady source of income.
- A lender may require a copy of your monthly budget, including all income and expenses, to determine if you can meet your loan payments.
- A bank may review your credit scores and ratings. The better those scores are the higher chance you have to secure a loan.
- Some lenders may need a consignor for the loan.
- Find how to consolidate credit card bills, as well as the pros and cons of that approach.
What should I consider before agreeing to a debt consolidation loan?
You need to verify several things. In addition to potentially talking over your situation with a credit counselor, some additional items to consider before taking out debt consolidation loan include the following.
- The interest rate: Lenders will charge a variety of interest rates. In general, the interest rate on a secured loan will be lower than the interest rate charged on the unsecured loan. You always need to review the rates on any potential loan. This needs to be done before you opt for a debt consolidation loan. In addition, review all of the fees, prepayments terms, and conditions of any loan. Focus on the “fine print” too.
- Fees charged: Do not select a lender that charges high fees before providing any services.
- Monthly repayments: Ensure that the amount you need to pay each month is lower than the amount you are currently paying before the consolidation.
What steps should I take while applying for a debt consolidation loan?
- Be sure to take a realistic look at the total amount of bills and debt that you owe. Review all of your accounts and financial commitments, including car payments, utility bills, medical expenses, etc.
- The next step is to come up with a monthly budget, reflecting your income and expenses, and make sure that you include an amount in your budget for emergencies.
- Determine exactly how much you can borrow with your debt consolidation loan, and take a conservative approach.
- If after doing this and decide to proceed, make sure you abide by the terms of any loan. If you miss any payments or default on it, then this can present even more challenges.
Do credit card issuers have debt consolidation loan programs?
Yes, many card companies, such as Bank of America, offer their own debt consolidation loan programs. These are mostly focused on helping people pay off their credit card bills. Find out how to get a Bank of America debt consolidation loan.
Citigroup, sometimes still referred to as Citibank, also provides their own loan product that can be used to consolidate debts and pay off bills. More.
How about hospitals and doctor offices?
Many medical professionals, doctors, and hospitals will work with you and offer medical debt consolidation programs. These organizations will also offer other aid, including charity care, that can help you pay off all of your medical bills and debt. These types of plans are becoming more common with the escalating cost of health care. Learn more on medical debt consolidation.
What are peer to peer lending sites and loans?
Peer to Peer (P2P) lending sites, such as Lending Club, Prosper, and Zopa, offer a way for borrowers to get access to lower interest money to consolidate and pay off credit card debt, access loans for home mortgage payments, student bills, and auto loans. Many people, including regular everyday American families, investors and others loan money directly in peer-to-peer, or P2P, lending sites to borrowers and others who need help. Firms such as LendingClub.com facilitate the process, thus bypassing banks and credit-card issuers and offering people another way to consolidate their debts. More on peer to peer debt consolidation.
Also learn how to consolidate payday loans
While it can be more difficult to consolidate or eliminate payday loans, there are steps you can take and some companies that can help. Usually the biggest challenge with salary advance loans is that the consumer has poor credit. So if this is the case, trying to get assistance with the payday loan is challenging due to that fact. However, there are some things you can try and places to turn to for help. Learn more.
What are the main advantages of debt consolidation loan?
- A debt consolidation loan will help save you from paying high interest rates on your monthly bills. Of course this will only be the case if you receive a loan that has a lower rate than what you are currently paying. Always be sure to review the Annual Percentage Rate (APR) offered on a debt consolidation loan, and compare those rates between various lenders.
- A debt consolidation loan will assist you in paying off your creditors, including medical bills and credit card debt.
- It simplifies your monthly payments. Instead of someone needing to male multiple payments to multiple creditors, you will have only one payment to make every month. This will help you in managing and controlling your finances, and it will reduce the chances of late and/or missed payments.
- There should be less stress in dealing with just one creditor, and not multiple creditors.
- Compare debt settlement vs. debt consolidation. More.
So what are the big disadvantages of a debt consolidation loan?
- Most will involve a longer repayment period. While a debt consolidation loan will allow you to lower your monthly installments and interest rates, you will end up paying the outstanding debt over a longer period of time.
- For a secured loan, you will have to pledge assets like your home or car. This, or something similar, will also be required in order to obtain a secured debt consolidation loan. So these are higher risk in that if you have a secured loan, and do not make the payments on it, you might lose your assets.
- While it can help pay off your debts, it does not stop the borrower from taking up multiple loans again, or ending up in financial trouble again in a few years. It will not fix bad spending habits. It is key to develop a budget or spending discipline.
- Find the best do it yourself ways to consolidate credit card debt. More.