The truth about debt consolidation loan you need to know to get out of crippling debt

Do find yourself at wit's end the beginning of every month, when trying to pay off multiple debts with varying interests? Do these payments leave you broke and downtrodden each month? Is your credit score taking a hit every month due defaulting payments and missed penalties? Are credit card companies driving you nuts with updates, messages, and calls for non-payment of dues? Then it is time to take a step back and rethink your financial strategies.

Can debt consolidation loans help you?

Traditionally, when you opt for debt consolidation, you embrace a process that will lead you towards the resolution of all financial problems and help you pay off your creditors. This includes your persistent and pestering credit card bills that somehow manage to find their way in every month’s mail. You simply choose a better single monthly payment rate and forget the multiple payments you are making right now. This, of course, means access to a lump sum in the form of a new loan. This new loan sometimes comes as a second mortgage and sometimes as a home equity line of credit. Nonetheless, this new loan amount helps pay off all your dues and redirects the payment towards a single company.

What is the truth about debt consolidation loans?

This brings us to the stage where discovering the true nature of debt consolidation loan becomes indispensable. Debt consolidation loans can become your salvation in the times of extreme financial distress because –

They reduce the number of payments to just one
They reduce the number of creditors to just one (the consolidation loan company)

The reduce the total monthly payment

The interest rates are lower than the usual quick loans, short-term loans, and credit card advances
They can reduce the APRs if you can find the right company

How to find a consolidation loan company that’s best for you?

Experts opine that unsecured loans are better when the borrower is already going through financial distress, but nationaldebtrelief.com articles state that going for a secured loan can be quite risky for the borrower. Although financial distress often translates to a poor FICO score that attracts considerably higher interest rates, unsecured loans do not risk the loss of equity and property upon nonpayment. Consolidation loan companies tend to change unsecured debts to secured debts. Be very careful of this process and read the terms of the debt very carefully before you sign off. You could lose more than a couple of hundred bucks in the process. Signing up for a secured loan means putting your home or vehicle or any other collateral on the line.

Finding the best interest rates for your situation is not tough. You need to be calm and patient. Shop around for the best loan options. Several companies offer loan especially to individuals with poor credit scores. This is also true for business owners, who do not have a strong business financial profile or a rather short business experience. At times, you can save considerably by paying off the penalties more quickly on your outstanding loans. You can always shorten the repayment terms by coming to an understanding with your lender. A shorter term always leads to lower total payments for everyone and all amounts.

Will debt consolidation end your debt problem?

Debt consolidation can only work when the new costs are lower than the old debt costs. There are higher chances of success if you do not put your assets at risk. You need to understand the implications of the debt consolidation process to enjoy the benefits that the new loan brings. Debt consolidation loan can, of course, help you to pay off your debt, but it does little to solve your recurring financial problem.

How is a debt consolidation loan not the solution for everyone?

Just like a single medicine cannot cure all ailments, debt consolidation loans cannot provide the solution for every kind of financial trouble. Do you have the habit of binge shopping? Do you indulge in reckless spending? Do you find waving your card to pay off every expense therapeutic? Then debt consolidation loans are not for you!

Debt consolidation loan is not the solution; it is merely a tool that accelerates your progress towards one. During the occasional or unexpected (but not emergency) fiscal rough patch, you can turn to consolidation loans to cover your back. In reality, you take out a new and more manageable loan to pay off the annoying ones. So, you shift the debt from one place to another and change the monthly payment amount to make it more bearable.

Are there other options?

Debt counseling is an option for every debtor out there. This is one service some non-profit debt counseling agencies and organizations offer. You will not get financial aid from them, but you will get some good pieces of advice. For example –

You may not need debt consolidation loans, but a transfer of debts from high-interest credit cards to a zero-balance card.
Your situation might not be ideal for another loan, and a declaration of bankruptcy might be the only way to stop the downfall.
Your credit score might not be right at this moment for a new loan. You might need to move your payments around a bit to improve your FICO score.
The debt consolidation loan company you have chosen might not be in your best interest.

Always consider joining a debt counseling agency for a session to know better about money management.

The take-home message

See the new consolidation loan as a pit stop and not a destination. Unless you invest in a good debt counseling session or work out your monthly budget, you will find it impossible to get out from under the pile of unpaid bills, defaulting notices and creditor's letters. The only key to building your credit score once again and save money in your account is by checking your monthly expenses. You can start by making a detailed note of all your spending (including the pizza slice you are eating right now) for a month. This will help you see which expenses are essential and which ones are surplus. Control your bad spending habits to control your personal finance.