Debt Consolidation
Debt consolidation loans allow the consumer to make one simple payment a month as opposed to dispersing multiple payments to all their creditors. In turn, the consolidation company fronts the money to the consumer so they can pay off their creditors in full. In simple terms, taking out a debt consolidation loan implies the process in which a company provides you with money to pay off your debts while clearing the headache of dealing with a number of creditors on a monthly basis. The new “debt” you face exists in a consolidated form and owed to the company providing you the loan. And while this has been a popular debt relief option for many consumers facing outstanding debt obligations, there are a number of risks involved in taking out a consolidation loan that need to be recognized before moving forward with such a debt relief option.
An initial perk of a debt consolidation loan is a lower monthly payment. The debt consolidation loan company offers a lower, more comfortable payment by extending the time that you have to pay off the loan with them. However, what a handful of consumers don’t recognize is that the interest rates on the balances remain the same as the old interest rates. While the loan may solve your short term troubles, you may eventually pay back more than the original debt amount to the consolidation company because you are paying them back over a longer period of time with interest.
In addition, the potential for consumers to pile on more debt after receiving a debt consolidation loan looms in the background. The reason for this lies in the fact that a debt consolidation loan clears your accounts and resets the maximum limit on the credit cards once again. As a result, if the consumer is not entirely responsible with their finances, the debt may once again continue to pile on as financial freedom is often perceived once the original debts are paid off. Essentially, if you are not tight with your spending habits or fail to set up and establish a well balanced budget that suits your necessities and minimizes unnecessary expenses, it is likely that you may end up right back in the situation you started in before receiving the loan. While a debt consolidation loan may allow you to manage your outstanding debt a lot easier than before, it doesn’t eliminate the initial causes of why you ended up in debt in the first place, nor does it prevent those causes from taking root in the future once again.
Debt Consolidation Pros and Cons:
Pros
- Reduced Monthly Payments. The significant decrease in the monthly payment is probably the most alluring benefit.
- Reduced Monthly Payments. The significant decrease in the monthly payment is probably the most alluring benefit.
- Reduced Interest Rates. You may be able to get a lower interest rate with a home equity loan because it is a secured loan.
- One Single Monthly Program Payment. Consolidating all of the payments into one is easier to manage and pay every month.
- Tax Deductions. With a home equity loan, you may see some benefits from the tax deductions that come from paying interest on a mortgage. You can't get that with credit card interest.
Cons
- Get Into More Debt. It may be tempting to continue to use the credit cards that you've paid off. This is one of the reasons why debt consolidation is not a cure for credit problems.
- May Cost More Overall. Even though the monthly payments and interest rate might be lower, you can end up with a longer-term loan in which you end up paying more interest in the long run.
- Could Lose Your Home. If you go the route of a home equity loan, the lower interest rate that comes from listing your home as security might not be that beneficial if you default on your loan and lose your home.
- One Payment. In some cases, it can be beneficial to pay off smaller loans with higher-interest rates first. You don't have that option if you've lumped all your debt into a single loan.
- May not Qualify for a Loan. It's possible that with so much debt, you may not qualify for an additional loan. Or, if you do qualify, the interest rate might be high.
 The National Debt Relief Group can help you find the right solution with a free consultation. You can fill out our Short Application and one of our debt specialists will contact you within minutes, or you can call now – (888) 703-4948.
Debt Consolidation
|
|
Debts We Can Settle
Unsecured debts:
- Credit cards
- Unsecured loans, personal loans, or lines of credit
- Medical bills
- Collections or repossessions
- Business debts
Debts We Can't Settle
Secured debts:
- Lawsuits
- IRS debt or back taxes
- Utility bills
- Auto loans, government loans, or student loans
- Mortgages or home loans
- Other secured debts
Your Debt Relief Alternatives
If you are considering a type of debt relief program, know that there are alternatives to debt settlement. National Relief also offers debt management, which may work better for some consumers.
Your Consumer Rights
All consumers should be aware that they have specific rights under The Fair Debt Collection Practices Act. Debt collectors must follow the rules. Violations of this act by collectors can result in the consumer receiving damage awards.
|