In today’s world, paying back unsecured credit is getting harder and harder. In fact, credit card debt is the biggest type of unsecured loan which people have nowadays and trying to settle or clear these debts is quite difficult. With the compounding interest every month, most customers pay far more than they are supposed to and still receive huge bills at the end of the month. It is only when these situations arise that people start looking for alternatives to this problem. What else can they do to get rid of their credit card debt? How do they resolve their credit issues? That’s where debt consolidation loans come into the picture.
Getting a debt consolidation loan is always going to be beneficial for customers who are suffering from the heavy burden of credit card debt. These loans are a great way for people to avoid bankruptcy and get rid of those harassing phone calls from creditors while lowering the debt burden of the ever rising credit card bills.
The average credit bill per person in the US has crossed $9000 per annum and it is the extravagant and consumerist lifestyle of today which has led to this high level of debt. There are many students who use their credit cards and rake up huge bills without worrying about the consequences. And with so many people choosing the easy way out and simply declaring bankruptcy, debt consolidation loans have become a much more lucrative business to get into.
Mismanaging funds and using credit cards haphazardly can lead to some very severe financial consequences in the long run. When a person opts for these loans, it is very important for them to get quotes from various lenders so that they can make an informed decision. The internet is the easiest place for them to obtain this information.
Individuals take these loans to get lower interest rates than what they are currently paying on their credit cards. There is a negotiation which takes place between the borrower and the lender for the debt settlement process. The amount at which the debt is settled will help determine how much interest the lender will charge.
These loans aren’t only extended to people that have a good credit report. Although the amount of the loan sanctioned as well as the rate of interest is going to depend on the credit history of the individual. It is quite obvious that a person going in for these loans is not going to have a great credit history but the better the credit score, the easier it will be to get a debt consolidation loan.
But it would be wrong to say that these loans only have benefits and no drawbacks. It is important for individuals to understand both sides of the coin before making any decisions. There are two basic problems with these loans.
The first is the difficulty involved in getting the loans. There are many companies out there that offer these loans but getting them to give unsecured loans can be a little difficult. On the other hand, if a person has equity to offer, getting a secured loan is a much easier task.
The second problem involves getting sufficient credit to cover all debt. Some consumers may owe much more than they can afford and getting a consolidation loan for the entire amount will be off the table. And choosing to pay off only half of the debt is never the solution and will definitely lead to failure later on. Debt consolidation companies charge additional fees and interest which needs to be paid as well. Basically, unless the consolidation is into a single secured or unsecured loan, it is not going to be of much help.
However, the rate of interest charged on these loans is a lot lower than credit cards and this is the main way in which consumers benefit. Another added advantage is having just a single loan payment to make every month instead of having to keep track of multiple loans and dealing with multiple lenders all the time. At the end of the day the main purpose for a debt consolidation loan is to be able to rebuild credit history. All an individual has to do is repay his or her consolidation loan on time and their credit rating will automatically start rising.
And finally, a few last minute tips for choosing the right debt consolidation firm:
1. Always go for a reputable firm with sufficient experience in the field of debt consolidation. Their advice is going to be very important as far as getting rid of credit card debt is concerned.
2. Always compare quotes from various consolidation firms before making any decisions. A bad credit standing doesn’t mean negotiation is off the table.
3. Read through the contract offered by the consolidation company thoroughly before signing on the dotted line.
4. If an offer sounds too good to be true, it most probably is.
5. Never use a broker. Dealing directly with the debt firm is always the right thing to do.