Five Reasons to Consider Debt ConsolidationShould you or should you not pursue the offers to consolidate your debt? That is the question with which many people find themselves faced. The offers of free and fast debt consolidation certainly are tempting but not everyone is a good candidate. Hopefully these five reasons to consider debt consolidation can help you make the right decision.
Everyone prefers life’s easier paths and having all your unsecured debt consolidated into one affordable monthly payment certainly is easy. Upon approval of debt consolidation funds, you use those funds to bring the balances on all unsecured debt down to zero. After that, you’re left with just one monthly payment (plus any secured debt) that goes towards repaying your debt consolidation loan. It doesn’t get any easier than that!
If you’re still at the point where your debt hasn’t damaged your credit, debt consolidation is definitely worth considering. That’s because you’ll have the upper hand in negotiating the best deal with lenders. Debt consolidation is big business and it’s extremely competitive so having good credit will help you secure a decent interest rate on the debt consolidation loan. Remember, it only makes sense to consolidate debt that has a higher rate of interest than that charged on your debt consolidation loan. People with bad credit usually end up with higher interest rates making consolidation less attractive. This is important so it’s worth repeating: Only consider debt consolidation when the interest rate you can get is lower than that which is being charged on your unsecured debt.
If you are a homeowner with equity in your home and good credit, you have more debt consolidation options. Approval of a home equity loan or line of credit is a fairly easy process because your home is used (secured) as collateral. You can also opt for cash out refinancing and any of the other mortgage options that don’t have restrictions on the way funds can be used including personal loans. Just remember that secured loans always offer lower interest rates than unsecured loans.
No one can predict the future and you never know when job loss, divorce, illness or some other life changing event is going to occur. When you consolidate your debt, you do not eliminate it; you just eliminate the need to deal with multiple creditors. You still owe approximately the same amount you did before you consolidated your debt. So you’ll still need money to make that monthly payment. Ideally it’s best to have money in savings but since most people don’t, make sure you’ve got a source you can tap into if need be. This is crucial if your home is being used as collateral because the lender can take your house if you can’t make your payments.
There are plenty of legitimate debt consolidation companies out there, but unfortunately, there are some that don’t have good intentions. If you can spot a great deal from a scam, you’ll increase our chances that debt consolidation will actually get you out of debt instead of further into debt.