Role of Debt Consolidation to Overcome Debt

by on February 21, 2011

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 smallĀ installmentsĀ 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.

{ 3 comments… read them below or add one }

Jonathan March 20, 2012 at 11:24 pm

Most consumers are aware of credit scores, which use the data in your credit report to help companies predict your likelihood of repaying debt. Your payment history is the most important factor in your credit score, but companies also use information to predict other consumer behaviors.
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fran March 23, 2013 at 3:04 pm

I think home equity loan is good if yo do not run up more debt. You get tax write off and one payment so that makes some sense. The problem is you now have secured debt that they can go after you home if you do not pay the loan.
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fran March 25, 2013 at 5:39 pm

Home equity loan would be my first choice. You get to write the interest off but you have to make sure not to use more debt after paying credit cards and other bills off. Any home equity loan or second morgtage is secured by your home so make sure to not run anymore debt up and pay home loan off. If you need more credit or will use more debt i would not use home loan at all.
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