Consolidation
Loans -
Good Choices?
Many people with seemingly impossible amounts of debt consider consolidation loans. These loans allow them to combine many debts into one loan. They usually have a lower interest rate than the individual debts. While a lower interest rate is advantageous, other factors are worth considering. Please read below to learn more about them.
Avoid More Credit Cards
An aspect of consolidation loans that can trick many people is that once you have one, your credit cards are all paid off. Thus, you might be tempted to open some new credit cards. After all, now you're saving all this money, you can afford a few more cards, can't you? This is a train of thought you should never follow.
One dangerous aspect of debt consolidation loans is that the lower the payments, the longer they last, sometimes up to twenty years. To avoid paying off your current debt for the next twenty years, try and find a loan that doesn't last as long, and ask for payments that are as much as you can afford. It's poor practice to look at your payments and think, 'Oh, how cheap!' since this will extend your loan to what feels like forever.
The Interest Rate of The Loan
As different loans offer different interest rates, shop around to get the best rest rate. As this will be a large loan, the interest rate is almost as important as the one on your mortgage and is much harder to change after you've finished signing for it. As this will be a loan you'll have for a good deal of time, be aware of any offers that give you a good rate for a limited time.
This doesn't mean, however, that you will have a higher interest rate than otherwise. One of the advantages of this, aside from paying all debt in one bill, is that the interest rate will be significantly lower than credit card interest rates. If you have many cards at a high rate and can't transfer the debt anymore, then debt consolidation could be an excellent idea.
Your Home Is On The Line
This is by far the most dangerous aspect of debt consolidation. Almost without exception, the loan will be secured on your home. That means that if you start missing payments, the finance company will kick you out, take ('"repossess") your house, sell it, and pay back the debt with that money. While they may work with you some to keep you paying (since it is a lot of work for them to sell your house), they won't be sympathetic to your situation.
Related Article:
Consolidation-Who's Best? - topconsumerreviews.com
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