Is a Debt Consolidation Loan Online the Right Decision?Posted in Finance and Law
A big pile of bills is sitting in front of you and all you can think about is that you wish there were some way you could make it all go away. You hate having to keep track of several bills with different payment amounts and interest rates. An idea pops into your mind that perhaps you would benefit from consolidating this huge debt into a single loan payment. It sure would ease the bill paying stress you face each month. However, you are not quite sure if securing a debt consolidation loan online is the best choice. It is a good idea to take time to consider the pros and cons of this type of solution.
Taking On More Debt
Debt consolidation loans are available through a bank, credit union or from online financial consolidators. The whole idea of consolidating many payments into one is a good idea on the surface. Be aware that it does involve taking on another debt in the form of a loan. What you are doing is requesting a large loan to cover the cost of the entire amount of your existing debt.
Keep in mind that this loan would be another type of debt that requires responsible money management. If you are granted this loan, and the debts are wiped clean, how will you handle your credit cards?
This is an important question. Should you start using those credit cards again in the same manner as before you could end up in the same position, only with an additional loan to pay off. Decide if you are going to cut up one or more cards, or restrict how they are used going forward. Three quarters of the people that receive consolidation loans pile on more debt. Discipline is required to avoid deeper financial problems.
Is the Cost Worth It?
Debt consolidation loans have fees and interest rates attached. When doing your research take note of how much in total each month you would be paying on the loan agreement. Compare those figures with the amount you spend right now on your total debt. Going over the numbers is a quick way to see if you are actually going to save money by going the loan route.
Do the math and add up the remaining months left on your current debt. Now add up the number of months it takes to pay off the loan. One of these totals is going to be less than the other. If it is cheaper to continue paying the bills on your own, a debt consolidation loan may not be your best choice.
Of course, you may still decide that getting rid of the hassle of juggling multiple bills is worth the extra expense.
Risking Your Home
If you qualify for a home equity loan that uses your home as collateral, your home is on the line. Decide if you are okay or not with risking foreclosure in the case of a loan default.
A good reason to choose to consolidate debt through a loan is that it will give your credit score a boost. Having credit at your disposal is a good thing unless the cards are continuously being maxed out. Carrying large amounts of credit each month decreases your credit worthiness due to higher risk of default. It becomes difficult to keep up with higher payments.
A debt consolidation loan online can quickly relieve the stress of struggling to make payments on time. There is only one payment to make and the amount is predetermined. Making timely payments each month on the consolidation loan allows you to rebuild your credit standing. The main thing you are proving is that you are responsible with debt.
In time, your credit score moves up into good status. This increased rating is reflected in the annual reports issued by credit reporting agencies. Living debt free is now possible.