Let’s face it, every person has at least one debt being paid off. In fact, if you have several debts you are paying off all at once, you are no different from a majority of people in the country. Unfortunately, managing several payments can become overwhelming eventually, however, there are options which can help you consolidate your loan into a manageable monthly payment. A Debt consolidation mortgage is one of these options.
Basically, what a debt consolidation does is to pay off several debts by taking out another loan. You will then pay off what you owe the lender through monthly repayments. Most consolidation loan offers give you the opportunity to pay off loans at a lower monthly amount or lower interest rate. Typically, you can choose from two types of debt consolidation loans:
- Secured. There is collateral used to secure the borrowed amount. The most common security presented is a home. This option is presented to people who are acquiring a large sum of money or if they have less than stellar credit scores.
- Unsecured. The lender does not require you to provide collateral or security to borrow money.
- Any of the possible savings you will get by consolidating your debt will not go to paying fees and other charges.
- You are confident in your ability to keep the monthly repayments.
- Consider it only as an option to help you manage your finances and cut back on unnecessary spending.
- After checking your options, you will pay less on interest and the payable amount is less than all your consolidated debts combined.
If you choose a secured loan, you have to keep in mind that missing out on payments will put you at risk of losing the collateral provided.
When is it appropriate to take out a debt consolidation loan?
Working out whether a debt consolidation loan is beneficial to you depends on the following considerations:
Take into account possible events that may impact your ability to pay off the loan. For example, some life-changing decisions like switching careers, getting married or having children may put you in an additional financial burden. As such, think long and hard whether applying for a new loan is the best solution for the time being.
How to choose a debt consolidation loan
Every financial decision requires careful planning. When you shop around for a debt consolidation loan, use comparison websites not only for convenience but to have access to the best deals. If there are other alternatives suited to pay off your existing debt, talk to a financial advisor about it.
Another piece of advice most financial experts would give in shopping around for a debt consolidation loan is to look at the annual percentage rate because this does not include additional costs and fees.
Although a debt consolidation may be your only way out, there are other ways to manage your finances. Instead, you can start by lessening your spending such as getting rid of a few credit cards to avoid further financial obligations and by doing so, resist the temptation of using them and thereby increasing your debt and commitments.