The need for money to pay for things has flared up with the current wages deflation and people are taking loans to survive in this competitive world. These loans are available at high interest rates and it is important to keep track of all the loan payments, to avoid any penalties attached with them. Consolidation of loans is one way to reduce your monthly loan payment and increase monthly cash flow. Check out the importance of consolidating loans to help in the debt payments.
Consolidating Loans Helps In Debt Payments
Consolidation is like refinancing. It is an exercise where you take big loan and then pay off all your previous smaller loans. This one loan comes with only one monthly interest payment. The new loan, known as debt consolidation loan, helps to shed off older loans, so that you can start afresh.
What is Debt Consolidation?
Some people believe that debt consolidation is a removal of debts, but it is not. It is just a consolidation of smaller debt into one big with lowered interest rates. It helps you to pay off a single creditor at a time, instead of paying the whole bunch of them. Remember that the total amount of debt does not reduce through debt consolidation.
Debt consolidation loan can be:
- Secured debt consolidation loan, or
- Unsecured debt consolidation loan
Explaining Secured and Unsecured Debt Consolidation Loan
1. Secured debt consolidation loans:
If you take secured debt consolidation loan to consolidate smaller unsecured loans, it means that you are converting short-term unsecured loans into a long-term secured loan. All your personal assets such as me, jewelry, shares, debentures, bonds, etc. are set aside as collateral, when you require a secured debt, and the creditor secures all your assets if you fail to repay the loan.
2. unsecured debt consolidation loans:
Through this way of consolidating loan, nothing is kept as collateral. However, individuals with a good credit score only get these kinds of loans. Smaller unsecured debts like credit card dues, unexpected medical bills, education loans, and others, come under unsecured debt consolidation loans.
Interest Rate on the Debt Consolidation Loans:
Taking a big debt consolidation loan at a lower interest rate is beneficial, but the interest rate of a loan depends on the conditions of the interest rate market.
Make sure that you do not get a loan with interest for a very long duration as this may end up for you in paying more. Carefully judge your options and then take the loan lending decision that is most compatible with your finances.
Eligibility for Getting a Consolidation Loan:
The basic criteria for the eligibility of taking a debt consolidation loan are:
- The age limit should be a minimum of 18 years.
- The applicant should earn an income.
- He should not be bankrupt.
- The borrower should have resided at the current place of residence for at least three months.
People with irregular monthly income and bad credit scores also get unsecured consolidation loans but they come with high interest rates.
Managing Your Debts with Debt Consolidation Loans
If you want to get debt consolidation, and do not know your options, below are three different ways through which you can get debt consolidation loan successfully.
- Approach The Local Banks
The first avenue of trying to obtain a debt consolidation loan includes taking loan of consolidation from the banks in your locality. People who are already associated with the banks are preferred and the banks think well of them.
Although the banks offer their valuable clients, debt consolidation loan with the most ease, but in many cases, people can also get loans to pay off the debts from the banks, they have not visited before.
- Getting Debt Consolidation Loan from an Online Lender
Online lenders are available in a number of ways. You can search them over the internet through search engines or find them through a number of websites that are working in collaboration with reputable lenders.
You can attain the approval for the debt consolidation loan by getting an online request form, analyzed by multiple lenders who then approve or deny your debt request.
- Traditional Debt Consolidation Loans
Traditional debt consolidation loans are another easy way of getting the loans to pay off the debt amounts. If you think about getting your home or your automobile refinanced and have poor credit rating, you can avail this option.
For security purposes, your creditors put aside your assets as collateral before giving you the loans. Traditional debt consolidation loan is not the appropriate option, as you are putting everything on stake when you take such loans.
Always remember that debt consolidation loan can help you in a number of ways if you utilize the loan to its best. Changing of the financial habits is the first thing that you want to concentrate on while getting either secured or unsecured consolidation loan, to clear off your debts in a healthy way.