Paying off your debts can be challenging most especially if you need to divide all your money into many different loans, credit cards and other debts. In order to make payments easier and for you to have the chance to start anew, consider consolidation loan.
Debt consolidation loan allows individuals to combine their entire debts to one lower-interest rate loan. It cannot be denied that this option is beneficial particularly if you’ve got debts with higher interest. Combining all your debts will allow you to lower your payments monthly making it easier for you to settle your debts or bills monthly.
Ideal Candidates for Debt Consolidation Loan
An individual may be a good candidate for consolidation loan if:
- He or she has the ability to repay the consolidation loan without actually accruing added debts
- The person has the right to get a loan at better interest rate than current debt
- He or she is having a real hard time keeping up with the multiple schedule of payments
Loan Options Available
There are actually different types of loans that you can use to consolidate your debts and start anew. These include the following:
Credit Cards Balance Transfers
With this option, you can transfer credit card balances to single credit card and with lower interest rate ideally. Low balance credit card transfer rates are usually promotional rates which expire after six months so if you opt for transfer balances, ensure that you are aware when low rates will expire and when the regular rate will take effect for remaining balance. When sing this as debt consolidation loan, you‘ll need credit card with big credit limit to ensure that all your credit card debt will be covered.
Individuals can also use these as debt consolidation loans if they can borrow loans that are large enough to cover you entire balances. Personal loans are unsecured loans with fixed payments over fixed time period. Upon getting approval for this loan, you can actually use this in consolidating your debts.
Choosing the Right Consolidation Loan
Debt consolidation loans are commonly offered by credit unions and banks for the major purpose of combining all your debts. This consolidation loan varies; therefore it is highly imperative to choose wisely. Consolidation loan commonly has low interest rates than rates that you are currently paying.
You need to keep in mind that low monthly payment can be achieved by means of increasing the period of repayment. This means that you will pay higher interest since repayment timeline is longer overall.
When choosing from the different debt consolidation options, note that with any type consolidation loan, you are not actually getting rid of debt but shuffling things around so that it would be easier for you to pay. There are instances that individuals feel like they have less debt and are tempted to borrow more. This should not be the case. Individuals are advised to prevent borrowing until after the debt consolidation loan has been repaid completely.