Use Caution When Entering Into Debt-Consolidation LoanWritten by Marc Sylvester
To person drowning in debt, a debt-consolidation loan looks a lot like a lifesaver. But agreeing to such a loan without understanding it completely could be a serious mistake. Here's way it's supposed to work: You pay off all your small, high-interest consumer debts with proceeds of a new, low-interest loan that has a lower payment than total of smaller payments. In theory, consolidation is a terrific solution for a burdensome debt situation. In reality, it can force you into even more treacherous waters. Basically, there are three ways to consolidate: * A new, low-interest signature (unsecured) loan from an individual, bank or credit union. If you can get it, this type of debt consolidation is ideal. * Transferring all of balances to a new credit card. Beware of excessive transfer fees or other troublesome conditions buried in fine print. * A home-equity loan. It sounds great to pay off your high-interest debts with money borrowed against your home's equity. But this only increases stakes. Now if you fall behind, lender takes your home through foreclosure. There is one more significant danger that all of these types of consolidation loans have in common. I call it "doubling effect." If you've ever lost 10 pounds and gained back 20, you'll understand right away. Most people who pay off all their pesky credit card balances look at those zero balances with a sense of personal accomplishment. They've done something remarkable. They didn't really repay their debts, but they enjoy pretending. They say they won't use those accounts again, but they fail to close them.
| | Understanding Debt Consolidation LoansWritten by Johann Erickson
Debt consolidation loans can help you with many of your bills and reduce your payment into one low monthly payment. Before you decide to take this step you should learn what company is offering and what bills can be included in consolidation loan.
All unsecured debt such as collection agency debts, personal loans, medical bills, credit card debt, and student loans can be included in a consolidation loan. A consolidation loan gives you one monthly payment instead of several. With a consolidation loan: - You will not be paying interest on each debt separately.
- Your late fees will reduce or will completely disappear.
- You will not be receiving telephone calls from creditors.
- You will be protecting your credit rating
What happens when you consolidate? The lending company that you have chosen to help you with your debt will contact every one of your creditors and work out details on receiving a lower payment. The lending company then will pay each creditor monthly on your behalf. They will compile all of your debt together and extend loan, lower payments now will help you with having more money, but you will be paying off your loans for a longer amount of time.
The lending company will combine your total debt and give you a loan for this combined amount. This can help because you now will only be paying interest on one loan instead of several.
The lending company will also be able to extend amount of time other loans are due. This means, that if your loan was due to be completely paid off next year lending company will be able to extend that loan and give you lower monthly payments. This has its ups and downs. Since, loan will take longer to be off you will be in debt for longer, for that particular loan. So, you may not have that student load paid off when you had hoped. But, you will be paying less over a loner period of time.
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