Debt consolidation loan may come in your mind as an option to get rid of your debt. There are many people who consider a home equity loan or a second mortgage loan for getting out of their loans as this enables them to convert the debt payments into a single payment. It not only lowers the interest rate but also brings down your monthly payment amount by stretching the loan term. It may sound a convenient way to consolidate your loans as it makes the payment more manageable but at same time you should be aware of other important aspects of Debt consolidation loan.
Basics of Debt Consolidation Loan
In the process of debt consolidation, your balances are paid off through your credit cards, and new loan enables you to clear the other loans. Now you need to make one single payment in place of the several small installments of loan. A second mortgage or a home equity line can help you pay for this loan. You can also get an unsecured debt consolidation loan from some other companies as well. The only thing to be bothered about is the interest rate which is usually very high in this case.
A Momentary Relief or A Solution Forever
After taking debt consolidation loan, like most of the people you need to cover up your credit card balance back up within two to three years. A debt consolidation loan does not provide a solution to the real problem, which is caused by spending an excess to your income. Ignoring this problem may push into serious trouble and then you will have to pay twice of the actual amount.
Be Careful From Changing Unsecured Debt Into Secured Debt
Usually, a debt consolidation loan will convert an unsecured debt to secured debt. In case of secured loan, if you are unable to make the payments on your home equity loan, then they could recover the money by selling your home while on the other hand, if you cannot pay your credit card instalments then your credit score decrease but chances of losing your home are rare.
Debt Consolidation Loan as Money Saving Option
It begins with lower interest rate but as you are paying more instalments and with lower payments so you may have to pay more in interest. Finally, this loan will not help you to save money that you would have expected before taking the loan.
Other Options Despite Debt Consolidation Loan
You can also handle this problem by proper management of your budget, and preparing a debt payment plan. Talk to your creditors and make road for decrease the payment amounts and interest rates for you. You will have to think over the contributing factors that have resulted in the piling up of your debt. Avoiding those reasons and following an effective payment will enable you get rid of hefty debt and then staying out of it forever.