Considering debt consolidation? Before you decide to pursue debt consolidation, it’s important that you understand the truth about consolidation loans, how they work, and some of the potential pitfalls. Debt consolidation loans can help you pay-off outstanding debts, take control of your finances, and re-establish a solid financial footing.
One of the most appealing features of consolidation loans is their convenience. With a consolidation loan, you will be paying one single lender – instead of many different lenders each month. Plus, you will be paying a single interest rate – instead of 10 (or more) different interest rates from various lenders. There are several types of debt consolidation loans including home equity lines, cash out refinancing, and a personal debt consolidation loan. Personal debt consolidation loans are a good choice if you don’t own a home, or you have no equity in your home. The interest rates on personal debt consolidation loans are higher than home equity loans, but typically lower than credit card rates.
If you’re considering debt consolidation, it’s important to understand what debt consolidation companies don’t tell you. Many people don’t realize that debt consolidation companies often charge high fees. The fees charged will vary depending on the amount of your debts and the debt consolidation company you’re using. Typically, if you’ve acquired so much debt that you’re looking for a consolidation loan, the interest rates will be very high. You may not qualify for the low interest rates you see advertised. Companies who offer debt consolidation loans offer the very best interest rates to consumers with high credit scores.
If you’re in too much debt, chances are good that your credit score is suffering. Depending on your financial circumstances, pursuing a home equity line of credit (or personal loan) may be a better choice. Before you agree to a consolidation loan, be sure that the costs of the new consolidated loan are less than what you’re already paying across multiple creditors.
Debt consolidation loans can be a good idea if you’ve run out of available options and you’d like to avoid filing for bankruptcy. Be sure to consider all the risks, and shop among different lenders to get the best rate and terms.