Debt consolidation can bring about convenience into your life. Instead of paying twenty creditors who charge different rates at various times of the month, you can obtain one big loan to pay off all of the twenty accounts at once. After that, only one monthly payment is necessary. However, please keep in mind that the success rate of debt consolidation is less than 40%.
The benefits of unsecured debt consolidation loans include:
Convenience: You can pay all your unsecured bills, such as credit cards, payday loans, and medical bills, all at once. So, you only have one loan and an affordable payment plan.
Less stress: Reduce your stress associated to dealing with numerous creditors.
No more collection calls: Debt consolidation loans can take care of your payments, so you no longer would receive calls and letters from creditors and collection agencies.
Low interest rate: Unsecured debt consolidation loan have lower interest rates than the ones on your credit cards. As a result, your monthly payments would be lower.
Long term loan: Debt consolidation loans usually have a longer term than regular loans. Low interest rates and long terms are what make your monthly payments lower than the normal loans.
Easy budgeting: No more hassles dealing with multiple bills. One easy manageable payment would make budgeting easier.
Improve your credit score: When you pay back your bills with one debt consolidation loan, it would help to improve your credit score.
The drawbacks of debt consolidation loans include:
Long term loan: The longer repayment term on unsecured debt consolidation loans could be a disadvantage because you actually pay more in total interests at the end.
No tax benefit: Interests on personal loans are not tax deductible.
When choosing a debt consolidation loan, you should follow the tips below:
Research and look around: Shop around with different financial institutions to see which company provides you with the least monthly installment. You could try to negotiate a lower interest rate with that company. Also, research about the company’s profile and background. According to author of “The Get out of Debt Kit,” credit unions are more lenient than banks.
Be aware of the costs: You should know the costs break down before you sign any documents.
Calculate the interest rate and fees: Before you decide to debt consolidate, you need to make sure that the costs of the new, bundled loan is lower than your current fees. Calculate the interest and fees on all your current accounts, and compare it to the costs of debt consolidation. Debt consolidation does not guarantee you to have the lowest available interest rate, and your creditor could increase the rate if there is nothing to secure your loan.
Qualifications
You need to have a good credit score and income in order to be eligible for unsecured debt consolidation. The main objective is to ensure that you can make payments on the consolidation loan on top of paying back your monthly bills and spending.
