There will be times in life when you will probably be neck-deep in debt and even though this is not the most optimistic idea ever, you never know what may happen. However, there is a solution for every problem, so debt consolidation can actually be seen as a way out.
What is debt consolidation?
Debt consolidation is a loan that pays off your multiple debts, combining all those payments into a single one. You will have a new interest rate and just a single bill to pay per month. The main benefit is that you will decrease the number of monthly bills that you are currently supposed to pay. Also, the total interest rate will substantially decrease and you will forget about your need to keep track of your bills.
What are the types of debt consolidation?
These loans can be unsecured or secured. An unsecured debt consolidation loan means that it can be guaranteed only if you promise to repay it. On the other hand, a secured debt consolidation loan means that you need to use a physical asset in order to obtain this loan. Some physical assets that can be used for obtaining this loan are your home, a retirement account, your life insurance policy, your car, or other personal possessions that have high-value. For example, unsecured debt consolidation loans can only be applied to medical bills and credit cards, while secured debt consolidation loans can be applied to a wide range of obligations such as auto loans, mortgages and so on. Moreover, the latter one has lower interest rates than the former one.
Who offers debt consolidation loans?
You can get a debt consolidation loan from:
Banks make both secured and unsecured debt consolidation loans to borrowers who have a strong credit. Depending on the bank, these loans require full repayment within 5 or 6 months.
- Credit Unions
Credit unions also make secured and unsecured debt consolidation loans that require repayment from 1 month to 5 months.
- Specialized Lenders
Most of the debt consolidation loans are provided by specialized lenders. These are also known as finance companies and are different from credit unions and banks. By choosing a specialized lender, your old creditors will be directly paid. Also, as opposed to banks, specialized lenders have fewer requirements when it comes to credit history.
How can debt consolidation loan be a saving solution?
Whether you are choosing a secured debt consolidation loan or an unsecured debt consolidation loan, you will surely thank yourself later. In the first place, you will transform your multiple debts into a single monthly bill, thus it will be easier for you to remember paying for it. Also, by choosing an unsecured debt consolidation loan, you will be sure that you will not lose any physical property if you cannot repay it on time. On the other hand, if you choose a secured debt consolidation loan, you will have lower interest rates, better repayment terms and also, the requirements for getting a secured loan are less strict than the ones for an unsecured loan. Finally, a debt consolidation loan can be a saving solution for when you are in need.
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