What You Should Know About Debt Consolidation
Debt consolidation is a plan that combines all of your unpaid debts into a single monthly payment. This is usually achieved through a debt consolidation loan. A consolidation loan is used to clear your total debts and then requires you to make monthly refunds to the consolidator in place of your numerous creditors.
When you are stuck with your debts and can't keep to your payment plans, no payment option seems to be working, and you can't afford any increase on your interest rates nor the forfeiture of your collateral––debt consolidation could easily come to mind due to the tempting prospects of a one-time debt settlement as well as lower interest rates.
However, you've read and heard that debt consolidation could be alluring beforehand, but gets quite disturbing as soon as you get in. This leaves you confused: do you take the potential risks or entertain your fears and maintain your loans? The experts at Gold West Financial come to your aid.
With the consideration of certain factors relevant to debt settlement, we've highlighted the most important facts to know before consolidating your loans.
Debt Consolidation Does Not Reduce Your Loans
A popular, false assertion used on unsuspecting debtors is the promise of a reduction on their debts. When you consolidate your debts, they are not reduced in the least. Think logically: would a business engage in transactions without profits? What then do consolidators gain if they take care of your loans and get paid lower amounts in return?
The only factor that could see to a reduction of your interest rate is your credit score. And even this is due to your loan history. A decent credit score could get you an unsecured (interest-free) consolidation loan, in turn reducing the amount you repay.
Consolidating Your Loans Simplifies Your Debts
This is perhaps one of the best things about debt consolidation. When you consolidate your debts, your payment process is simplified. In previous instances which you would have to pay to several creditors, your payments are made to just one lender, perhaps a bank or credit union. This helps you to stop alternating bills with balances, as well as assists you to make single, prompt payments monthly.
Debt consolidation is often the last resort for debtors to regain control over their financial life. The respite and assurance granted after consolidating could lead to your financial freedom.
Debt Consolidation Means Longer Loan Term
This could be a pro as well as a con, depending on your suitability. Loan consolidation could offer you several positive possibilities, but remaining in debt for a longer time period of time is unavoidable. When you consolidate, your monthly payment is reduced, thereby causing you to remain in debt for a long while. This could count against you if you had plans to take another loan in the nearest future, but could be a plus if your interest rate is just ideal for your monthly earnings.
Your Credit Score Plays An Important Role
The relevance of your credit score cannot be ignored. Your credit score is the statistical representation of the likelihood that you will be able to stick to the initial agreement reached with your lender. The credit score is calculated based on your loan history. Defaults on your previous loan payments reduce your credit score, a consideration every consolidation firm must make before you get a loan.
A person with a high credit score has a higher chance of securing a consolidation loan even if he offers poor security. On the other hand, a low credit score, even with good collateral, is hardly considered.
So, there they are––the things you should know about debt consolidation. We hope this helps you to make a wise, helpful financial decision soon.