If you’re considering a debt consolidation loan, then you might as well know that it’s a dangerous thing to look into. Many would actually advise you against it mainly because you may have to pay a very high amount for it. However, in spite of all this, a debt consolidation loan has its advantages and you could actually use it to your benefit if you know the right way to go about it.
What is debt consolidation loan?
A debt consolidation loan is actually a loan that you take out to pay off all your existing debts. This is generally done so that you could have a lower interest rate, or so that you’d have to pay off just a single loan instead of several debts together. However, the lowered interest rate offered is mainly because of collateral. However, at the same time when it comes to paying your bills, it’s one solution that you should look into.
How would you get a debt consolidation loan?
If you’re in financial trouble, then it’s important for you to know the correct ways to secure a debt consolidation loan. Here are the 5 steps you could follow to get yourself the loan:
- Calculate your debts – You should firstly add up all your debts. Include all your credit cards and loans when making your calculations.
- Always check out details – It’s of mandatory importance that you check out the interest rates you’re paying on all your credit card accounts and loans. Don’t rush into things without thoroughly checking your finances.
- Find a lender – The next thing you should do is find the right lender for yourself. Contact several creditors and compare the loan products offered by each of them and choose accordingly.
- Choose the right loan – There are quite a few things to consider when it comes to taking out loans like the duration of the loan, the interest rate, the amount loaned and also the type of interest. It’s important that you get yourself a debt consolidation loan whose terms and conditions would suit you the best.
- Complete the formalities – You’ll have to fill out a loan application and supply the necessary documents needed. You may also submit all copies of credit card and loan statements to the lenders.
What are the pros of debt consolidation loans?
Even though a debt consolidation loan is considered dangerous, yet there can be quite a few positive sides to it. There are some financial advisers who’d actually recommend a debt consolidation loan to you because of the following advantages:
- Lower interest rate – Since you generally have to provide other collateral, hence you’ll have a lower interest rate as compared to your other loans.
- A single loan – It’s not just about lower interest rates when it comes to debt consolidation loans. You also have the advantage of having to pay just one single loan instead of several loans together.
- One interest rate – This is perhaps the greatest advantage of a debt consolidation loan. You have to pay off just one interest rather than several interest rates put together. Your debt gets reduced considerably because of this single interest.
What are the risks involved in a debt consolidation loan?
You should be aware of the fact that taking out a debt consolidation loan involves quite a few risks:
- You could lose assets – If you borrow against your home or any such asset, then do remember this can always backfire. You might end up losing your home or any such asset in case you’re not able to pay off your loan.
- It adds to your debt – No matter what, it still remains a fact that a debt consolidation loan actually adds to your debt. Don’t be under the misconception that it’s reducing your debts in any way. So be careful and handle your finances with care.
Your finances are very important, so you should handle them with care. It’s always best to stay off debt in the first place so that you won’t have to resort to debt consolidation loans at all. Consider a debt consolidation loan only after you’ve tried all other ways and they didn’t work out for you.
About the author: Ryan is a financial blogger and he love to write articles on different financial topics. He is contributory writer at Debt consolidation care Community and has written various articles on debt .