Using debt consolidation, you can consolidate multiple debts into a single liability and pay off those multiple debts and liabilities. You can consolidate the debts using your bank, credit card, or credit union company. Some of these companies may turn you down, so you may opt to explore private mortgage companies or lenders.
Creditors are willing to accept debt consolidation because the system increases their chances of collecting from the debtor. Many debt consolidation companies will consider your credit score before offering debt consolidation.
There are two types of debt consolidation loans: secured and unsecured. For a secured loan, you will need an asset, such as a car or a house, that works as collateral. On the other hand, an unsecured loan is one in which you don’t have to back with an asset. The unsecured type of loan is challenging to obtain and tends to have high-interest rates.
There are several ways you can consolidate your debts. The most common include;
If you are considering consolidating your debts, you need to consider both the advantages and disadvantages of debt consolidation before you come up with a conclusion. The first advantage is that you can benefit from a single monthly payment at a lower interest rate instead of being burdened by multiple payments. If you don’t add any additional debt, you will also become debt-free sooner.
However, you must be careful even though the interest and monthly payment may be lower on a debt consolidation loan. These longer payment schedules may mean paying more in the long run. Also, you may lose special provisions such as interest rate discounts for student loans. Mostly, people who default on consolidated school loans may find their tax refunds garnished.
Here are some scenarios when debt consolidation is a smart move:
Down the road, a consolidation loan may help improve your credit score. As you keep the interest payments low, you can keep up with the payments using less money, helping boost your credit score.
Debt consolidation can be a good idea. However, carefully evaluate the terms of the new consolidated loan to ensure you are getting a good deal and it is affordable. If you have a good credit score, getting a consolidated loan is better because you can get such a loan with low interest or at 0% interest. However, if you can’t obtain good terms, consider having a debt settlement scheme.