Lower Your Interest Rates with a Debt Consolidation Loan
Have you ever been faced with numerous debts owed at different times in the month and having different interest rates? Does this situation overwhelm you? This is where debt consolidation loans enter. Debt consolidation loans are simply debt settlement programs which can help you plan your way out of debt by making the payments more convenient for you.
Debt Consolidation Loans 101
Debt consolidation loans do not always require collateral of a secured asset against the loan. However, loans without the pledged collateral often have a higher interest rate than loans with security. Be careful about pledging your home as collateral when applying for a debt consolidation loan. This makes your house fair game for foreclosure with your lender. On the plus side, if you are confident you are able to repay the debt consolidation loan, a secured loan will provide you with a lower interest rate.
When applying for a debt consolidation loan, you need to be aware of any fees involved, the interest rate, and the amount each payment on the loan will be. You want to stay away from companies that want to charge you for a large commission. Lenders typically charge you for minor service fees, but should not charge commission.
Your new interest rate should be less than the rates you are currently paying. If possible, try to get the new interest rate as a fixed interest rate. This guarantees that your rate will remain the same throughout the entire repayment period. The total monthly payments should be lower than the total amount you were paying before the loan consolidation. If you were paying $387 total per month between your debts, the monthly payment for you debt consolidation loan should be less than that amount.
Debt consolidation loans consolidate most types of unsecured debts, most notably those from credit cards and from student loans.
Consolidating Credit Card Debt
When faced with unmanageable credit card debt, you may be overwhelmed with multiple (and high) interest rates and payment deadlines. By taking out a debt consolidation loan, this will allow you to pay off all debts at once and only be faced with a single loan to pay off. Most credit cards have a higher interest rate than debt consolidation loans, so taking out a loan can help lower the interest rate.
When using a debt consolidation loan to manage your credit card debt, be sure to realize that this loan will only shift your debt from multiple loans to a single loan; your debt is not eliminated. You still need to pay back the money through the loan. Even though your credit cards may allow you to use them again, do not fall into the trap of using them. Remember that you are still in debt, and every penny you put onto your credit cards will put you further in debt.
Consolidating Student Loans
Similar to credit card debts, consolidating student loans will allow you to put various student loans into one single consolidation loan. You may want to consider this option if you only want to have a potential for a fixed interest rate and more flexible payments.
Unlike credit card debts, if you are seeking a student loan consolidation, you do not need your credit score to qualify. The interest on the student loans may also be tax deductible and debts are discharged at the borrower’s death.
Remember that even though it looks like you owe no debt on your credit cards once you use the debt consolidation loan to pay them off, you are still paying these debts through the loan. You may have credit lines, but you do not want to purchase more items, which will increase your debt. Debt consolidation loans can be very helpful in helping manage your debts and lowering multiple, high interest rates.