Debt Consolidation Loan - The Pros and Cons
You are swimming in debt. You
have 4 credit cards maxed out, a car loan, a consumer loan, and a house
payment. Simply making the minimum payments is causing your distress and
certainly not getting you out of debt. What should you do?
Some people feel that debt
consolidation loans are the best option. A debt consolidation loans is
one loan which pays off many other loans or lines of credit.
I'm sure you've seen the advertisements
of smiling people who have chosen to take a consolidation loan. They seem
to have had the weight of the world lifted off their shoulders. But are
debt consolidation loans a good deal? Let's explore the pros and cons of
this type of debt solution.
Debt Consolidation Pros
1. One payment versus many
payments: The average citizen of the USA pays 11 different creditors every
month. Making one single payment is much easier than figuring out who should
get paid how much and when. This makes managing your finances much easier.
2. Reduced interest rates:
Since the most common type of debt consolidation loan is the home equity
loan, also called a second mortgage, the interest rates will be lower than
most consumer debt interest rates. Your mortgage is a secured debt. This
means that they have something they can take from you if you do not make
your payment. Credit cards are unsecured loans. They have nothing except
your word and your history. Since this is the case, unsecured loans typically
have higher interest rates.
3. Lower monthly payments:
Since the interest rate is lower and because you have one payment vs many,
the amount you have to pay per month is typically decreased significantly.
4. Only one creditor: With
a consolidated loan, you only have one creditor to deal with. If there
are any problems or issues, you will only have to make one call instead
of several. Once again, this simply makes controlling your finances much
easier.
5. Tax Breaks: Interest paid
to a credit card is money down the drain. Interest paid to a mortgage can
be used as a tax write-off.
Sounds great, doesn't it? Before
you run out and get a loan, let's look at the other side of the picture
? the cons.
Debt Consolidation Cons
1. Easy to get into further
debt: With an easier load to bear and more money left over at the end of
the month, it might be easy to start using your credit cards again or continuing
spending habits that got you into such credit card debt in the first place.
2. Longer time to pay off:
Most mortgages are the 10 to 30 year variety. This means that rather than
spend a couple of years getting out of credit card debt, you will be spending
the length of your mortgage getting out of debt.
3. Spend more over the long
haul: Even though the interest rate is less, if you take the loan out over
a 30 year period, you may end up spending more than you would have if you
had kept each individual loan.
4. You can lose everything:
Consolidation loans are secured loans. If you didn't pay an unsecured credit
card loan, it would give you a bad rating but your home would still be
secure. If you do not pay a secured loan, they will take away whatever
secured the loan. In most cases, this is your home.
As you can see, consolidated
loans are not for everyone. Before you make a decision, you must realistically
look at the pros and cons to determine if this is the right decision for
you.
Wesley Atkins is the owner
of http://www.credit-cards-advisor.com-
which aims to get you fitted with the best credit cards to suit your situation.
With numerous credit card articles and easy online credit card applications
you will never choose the wrong credit card again.
Debt Consolidation and Loan Resources:
Bad
Credit Loans
Loans
for Women
Debt
Consolidation Loan Application Shows
you how much you can save each month if youconsolidate all your loans into
one. It's completely free to use and they will even match you up to 4 lenders.
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