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Cosolidation Loans

Consolidation loans can solve your debt related problems

The number of people facing debt related problems is rising continuously with recent reports suggesting that many are in the danger of being declared bankrupt. The situation will only get shoddier, with the increase in interest rates in future, which will eventually lead to higher mortgage payments to be paid, from already strained budgets.


If you are one of the many people facing real problems in repaying your debts, you have most likely been looking for solutions to come out of this financial mess, and you will probably come across some advertisements putting debt consolidation loans as possible solution.

Introduction to consolidation loans

Debt consolidation through consolidation loans is the simplest and most easy way of dealing with debts. Debt consolidation loans involves taking out one loan to pay off many existing loans. The basic idea behind debt consolidation is that you take out another loan called as debt consolidation loan which is large enough to repay all your current debts such as personal loans, credit card bills, overdrafts, car loans etc. For example, if you owe $5,000 as personal loans, $3,000 in credit card bills and $ 10,000 as mortgages to a single or various lenders, then depending upon your financial position, you can avail a debt consolidation loan worth $18,000 or more than that.

Advantages of consolidation loans

The purpose behind consolidating your debts is to secure a lower rate of interest, switch to a fixed rate of interest or for the ease of servicing only a single loan. But borrowers who want to avail debt consolidation loans must make sure that the total monthly payment they have to pay now should be lower than what it was. This can only be done if they avail debt consolidation loans at a comparatively lower rate of interest than your present loans. Also, extending the repayment term to repay your consolidation loan will lower the monthly installment even more.

Consolidating your debts will leave you with a single monthly installment to pay, which is already a big step forward in putting your finances in order. You will be free from keeping track of many repayments and making which will be easy to manage.

Debt consolidation loans are advisable in theory when you have huge credit card bills to pay.

Credit cards carry a much higher interest rate than unsecured loans from a bank. Some lenders offer consolidation loans for the specific purpose of paying off credit card bills. These loans are called credit card debt consolidation loans.

Disadvantages of consolidation loans

This sounds great in theory, but consolidation loans arent without any problems. Firstly, you are not actually decreasing your debts, just your monthly installments. This may look beneficial in the short term but in the long term you will probably pay more money on interest overall as it will take longer time to clear the debt. You will also mostly shift your unsecured loans onto a secured loan, which might put your house at risk if you struggle with your repayments.

When to go for debt consolidation

Make an assessment of your spending to know where your hard earned money is going. Write down the details of your income and spending for at least two months. Now calculate all your debts and add up the minimum monthly payments you need to make for these debts.

Financial experts are of the opinion that if you can pay double the amount of all your minimum monthly payments every month and still can put at least 10 percent of your monthly income in savings, then you need a structured spending plan to accelerate your repayment of debts.

Some of the following factors combined together can signify whether you need to go for debt consolidation loans or not.

* Your get regular phone calls and reminders from debt-collection agencies;

* If you buy regular household items like groceries, personal care-items using credit cards;

* If you skip one bill to pay other bills regularly;

* If you make use of credit-card cash advances;

* If you take help of payday loans to make ends meet until payday.

How to get a consolidation loan

Finding a consolidation loan has become very easy with many lenders offering consolidation loans in the lending market. The intense competition in the market among lenders to lure borrowers has also resulted in the introduction of attractive consolidation loan deals on a regular basis. With each lender promising moon, selecting a right consolidation loan package has become confusing. Therefore, it has become more important for borrowers to research and shop around in the market to get the best consolidation loan deal.

Contact as many lenders as possible. If you are extremely busy and do not have time to meet lenders then get in touch with them online. If you have toll free numbers of the lenders you can also contact their office and collect information on the products they are offering. Do not forget to gather information on eligibility conditions, documents required, terms and conditions of the loan and the various charges and fees including rate of interests.

Once you have collected information on a number of consolidation loan packages, start matching them with your needs. Compare these loan packages against each on the basis of interest rates, repayment duration, other charges etc. Find out whether any particular lender is offering you greater flexibility in repayments like payment holidays and other discounts. Do not jump on the first offer you find attractive. A consolidation loans will go around for years and a little patience will make your future comfortable. Once you have decided on a consolidation loan deal, keep your documents ready before applying to the lender.

Debt consolidation through consolidation loans is an instant solution and can put your finances in order although at the cost of more interest being paid in the long period. In spite of that it remains an excellent choice for people who are facing debt problems to a moderate level.

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