Debt Consolidation Loans

Debt Consolidation Loans

The Facts About Debt Consolidation Loans

When it comes to debt consolidation loans, there are a lot of "Doubting Thomases" out there. But their questions are legitimate! On this page, we'll address their concerns and give you the facts about debt consolidation loans.

The first objection people usually have about debt consolidation loans is that you still have the debt, meaning you still owe what you owed before. That's true, but there are a couple of reasons they're still a better option than trying to deal with it on your own:

1. You can pay off your outstanding debts all at once, thereby improving your credit record immediately. (And yes, your credit report will still show that you have a loan to pay off, but it will be paid off in five years instead of showing that you owe the other balances for the next 15 years or so.)
2. The interest rate on debt consolidation loans is so much lower than what you're paying on your other debts that you can have the loan paid off in five years - even with online debt consolidation.

Many people in debt like the idea of debt consolidation loans, but a debt consolidation loan requires collateral, and lots of people in this situation don't have collateral. Or, they are homeowners and use their house as collateral. But your collateral should be worth the same amount as what you borrowed, not more. Think about it--if you put your house up as collateral and then you lose your job, you may not be able to afford the debt consolidation loan payments anymore. You're still making your mortgage payments, but to get their money, the lender of your debt consolidation loan will sell your house. If you only owe $8,000 and your house is worth $200,000, for example, the bank won't give you the $192,000 difference. (Besides, a better option for homeowners is a debt consolidation mortgage. Question anyone who tells you otherwise.) If your car is paid for and it's worth about $8,000, you could put it up for collateral instead. Yes, it would be a terrible inconvenience to have your car repossessed, but you shouldn't take out a loan of this kind with the intention of not paying it back.

If you don't have collateral, but being out of debt in five years appeals to you, you can enroll in a basic debt consolidation program. This is not a loan, but the reason it can get you out of debt in five years is because it can get you big reductions in interest rate. Some debt consolidation companies can even convince your creditors to get past fees removed (if you had any). Then they combine all your debts and you make one monthly payment to the debt consolidation company instead of a bunch of monthly payments to your creditors. Talk about convenience! The debt consolidation company will make sure your creditors get their money.

Whether you choose a debt consolidation loan or a basic debt consolidation program, think of how nice it will be in five years to be able to say, "I Used to Be In Debt."