What is a Debt Consolidation Loan?
What is debt consolidation?
The essence of debt consolidation lies in combining all your debts into one single debt.
Keeping a track of too many debts can be difficult, resulting in you sometimes missing your debt payments. Also, you may miss out on the magnitude of the problem, which may be reaching the danger level mark.
To make things simple, you use a single loan to pay off all the individual loans you have as on date, such as the credit cards, personal loans, store cards etc.
Debt consolidation could also save you some interest, if the single loan that you get through consolidation has a lower average interest rate than some of your individual loans.
I want to know more about consolidation loans
You may have more than one credit card. Apart from this you have taken a few personal loans, not to mention your store cards and other such debts. With so many debts to take care of, it is quite natural to lose track.
It is much simpler if you have say 1-2 debts to take care of. As the name suggests, debt consolidation involves combining all your debt into say one debt.
For example, you could take one loan – called the consolidation loan, which you can use to clear the balances outstanding under all your credit cards and then destroy the cards. Further, you also pay-off your personal loans and store cards from the consolidation loan. This restructuring ensures that you have only one debt to concentrate on.
Apart from this, there could be another advantage. Supposing your interest charge on the personal loans is more than the consolidation loan. Or say you are able transfer the credit card balances to the one, which carries the lowest rate. Thus, the restructuring will mean that your overall interest outgo every month would come down.
Further, if you can informally arrange with your creditors to give you more time to pay, you can lower your monthly debts payments.
All this may help you to come out of your debt problem and put your financial house in order.
How does debt consolidation compare with a debt agreement?
While debt agreement also results into debt consolidation, it is a formal and legally binding arrangement. The debt consolidation, on the other hand, is an informal arrangement between you and your creditors.
Under a debt consolidation, not all creditors may agree to your proposal, the creditors can still continue to bother you, there may not be any interest freeze and it may not cover all your unsecured debts. But you could save on any on-going fees unlike in debt agreement.
Selecting the most suitable remedy will depend upon how deep your debt problem is. For minor problems, a simple debt consolidation may be the most suitable option as it enables you to conveniently pay off your debt without impairing your credit rating.
If you'd like to find out more about how you can escape the debt trap, contact BadCreditDebtConsolidation.com.au on 1300 724 307 today for a free consultation.
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