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Keep These Factors in Mind Before Taking a Debt Consolidation Loan

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Debt can cause a real messy situation. Debt accumulation could eventually lead you to a bankruptcy situation.

Debt consolidation simply means moving all your debts into one place. This is to cut the chase of dealing with multiple lenders and different monthly statements. Refinancing is when you replace your old loan with a new loan. Both options can offer a lower interest rate.

Refinancing happens when you already have a loan. The lender pays off the old loan and you now have to pay the lender.

There are various debt consolidation agencies. All these are aimed at providing you with relief from your debt situation. However, circumstances differ. Thus, it is important to find a type of loan that matches your financial needs. There are two main ways of getting rid of debt;

  1. Pay off the debt yourself
  2. Get a debt consolidation loan

Related: 5 simple steps to get rid of debt.

Is Debt Consolidation For You?

Debt consolidation loan is a more popular option for debt management.

Besides, being in debt means you already have little control of your finances. Various lenders will offer personal loans or unsecured loans. However, these may mean a higher interest rate since there is no collateral against the loan.

Remember that refinancing or to consolidate a debt does not reduce your debts. You will still owe the amount. What reduces is the interest rate. A debt consolidation loan offers you a longer repayment period.

The following reasons may call for need to consolidate;

  • You can afford to keep up payments until full loan repayment
  • You are using it an opportunity to cut spending and get back on your feet
  • The loan will help you clear all the debts you have

How to Consolidate a Loan

If you are struggling to manage your debts, you need to talk to your credit provider. You can start by recording all your loan and credit balances. A lender will be able to show you all your consolidation options.

Get your credit report from the reporting agencies. If your report has improved since the last loan, you might enjoy lower rates.

It is also important to talk to a credit counseling agency. Reliable advice on how to consolidate a debt might be helpful. Sometimes to consolidate may not be the best option for you.

A Secured Loan Vs. Unsecured Loan

A secured debt consolidation loan has a lower interest rate. You could use your home mortgage, secured lines of credit as collateral. This means in case of defaulted payment, the lender will sell off these assets.

Unsecured loans may be viewed as a safer option since there is no risk of losing a property. You can compare dozens lenders’ rates here in Financer.com offering debt consolidation loans.

Avoiding Consolidation Traps

Ensure the decision to consolidate a loan is reasonable. The rates need to be a much lower than the total amount of debt you are consolidating. There are some lenders who charge penalties if you will pay off the loan early.

Check the loan term. Even if the interest rates are low, a longer term means more fees in the long run. Always read the terms carefully. Ensure your credit provider is licensed.

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