Most people need financial help at some point in their lives, whether it’s because of an unexpected expense or long-term poor financial choices. The bad part is that either of these can leave you trapped in debt. There are, however, options and practices that can help you lower your debt.
Debt consolidation loans
Your debts do not, however, have to go from bad to worse. Debt consolidation loans, or combining multiple loans into one for the convenience of paying a single loan, is often done to acquire a lower interest rate or to have the advantage of a single monthly payment rather than several small ones. The practice is attractive to many because it has worked for some people and helped them maintain stability in their personal finances.
However, this too can be tricky. You may pay less in monthly fees, but if you are not committed to making payments on time things can get much worse and you’ll end up with the same and sometimes double or even triple the amount of what you originally planned to pay. This is especially true because paying a debt consolidation loan will take a much longer span of time than ordinary loans. It may seem like you are paying less because of the ease of monthly payments, but if you calculate it you might find that you actually end up paying more in the long run.
What has made debt consolidation appealing to many is its convenience. Instead of paying several creditors who charge different rates at different times of the month, you can take out one big loan and pay off all those accounts while paying only once every month. You have to remember, though, that ease of payment does not always mean savings.
Risks of debt consolidation loans
If you do decide on a debt consolidation loan, see to it that the deal you are getting actually gives you a lower interest rate than what you are paying now. Many companies allege to offer services in consolidating debts, but if you don’t look more closely into it you may end up paying more through their “help.” Make sure that there aren’t any unnecessary fees. Plus, if you have nothing with which to secure your loan (like a car or a house), you can expect an increase in the rate of payment. Another plus is that if you have so much debt that it is overwhelming, chances are you won’t qualify on your expected low-interest payments or that you will end up with the same and perhaps even more debts to pay.
If you think a debt consolidation loan is the right choice for you, gather as much information about it as you can so you know into what you are getting yourself.
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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.