Despite their best intentions, some people will borrow too much money. They usually get to a point where they owe more money than they earn. As a result, they’ll fall behind on their payments, and soon a financial disaster occurs. Of course, there can be other circumstances that lead to such issues. For example, some folks may only get offered high-interest loans and credit cards. Or they may end up on a reduced salary through no fault of their own. When people reach such a point, they often have a few options available to them. One of those is to take out what’s known as a debt consolidation loan. But, what exactly are those loans and how do they work? And is such a loan right for you? In today’s blog post, I will tell you everything you need to know about debt consolidation loans.
What is a debt consolidation loan?
You might be thinking that these are some type of “special” loans. In reality, they are just the same as any regular loan. The only difference is the purpose of the loan. When you take out a debt consolidation loan, you do so to clear your existing debts. Let’s say that you’ve got a series of loans and credit card debts. And we’ll also assume that you are struggling to pay them all each month. The purpose of the debt consolidation loan is to pay off all those debts. You are then left with one manageable loan.
Why should you take out a loan to pay off other debt?
Some of you may think that debt consolidation loans are a waste of time. After all; they are just another form of borrowing, right? The truth is, they can make a massive difference to many people’s lives. For example, those with high-interest loans and credit cards have less to pay back each month. Debt consolidation loans offer lower interest rates. That’s compared to the combined interest payments of existing debts, of course. The idea of such a loan isn’t to spend it on anything. You use the money to pay off your other debts in full.
Are debt consolidation loans a good idea?
There are specific circumstances where it makes sense to get a debt consolidation loan. Usually, if you have too much you can’t afford to pay, they make sense. That’s because your monthly payment is lower with a debt consolidation loan. They are also a good idea if you have plenty of high-interest credit cards. If you have small but manageable debt, you’re unlikely to need one. Still, that doesn’t mean you should rule them out if you want to re-organise your debt.
How do you get a debt consolidation loan?
Thanks to the Web, it’s possible to find an array of sources for such loans. First of all, you should speak with your bank. It’s possible that they can offer you a loan to restructure your debt. If you’ve got a good credit score, that can also work in your favour. The other thing you can do is research providers of debt consolidation loans online.
- Make sure your bills are always paid on time;
- Don’t take out any other loans or credit cards;
- Cut down on unnecessary expenses like cable TV.
Are there any alternatives to debt consolidation loans?
In a word, yes. Some people assume they are the last resort to their growing debt crisis. But, the truth is there are plenty of ways to better manage one’s debt. One example is to do a review of your monthly income and expenditure. You can then start to identify ways to cut down on your bills. For instance, you could reduce your grocery bills by buying from other stores. You could lower your car insurance costs by changing providers. It might sound obvious, but many people fail to shop around for the best deals on the things they need.
Another thing you can do is determine how to earn more money. The first step would be to apply for jobs that offer higher salaries. With the extra monthly income, you can pay off your debts quicker. If you can’t change jobs, you might consider doing something like home-based work.
In severe debt cases, it might make better sense to go bankrupt. Of course, such a decision should not get taken lightly! Nor should it get chosen without knowing of the consequences. Bankruptcy is something that will affect you for many years. You will also find it almost impossible to borrow money in the future. Still, it could be a possible solution if your debt crisis is too extreme to go for a debt consolidation loan.
What to do next
Have you decided that a debt consolidation loan is the best option for your financial situation? If so, it’s important you talk it over with a professional first. That’s because they may suggest other ways for you to improve your debt burden. They can also provide you with support both now and going forward. Plenty of debt advisers are willing to help you with your financial situation. In the meantime, you should let your creditors know that you are struggling to make your payments. It’s important that you tell them what’s going on. It might surprise you to learn that some may even offer to help reduce your debt burden!