May 9, 2013

Debt consolidation can help you get out of the maze of debt

If you are facing troubles in keeping up with the payments on the multiple debts that you have, you can try out debt consolidation; so that all your multiple debts will get consolidated into a new single loan, with a lower monthly payment, at lower interest rate. There are two types of debt consolidation loans the unsecured and the secured loans. Unsecured loans do not require you to provide any collateral to take this loan, but you may have to pay a high interest rate. However, in case of a secured loan, you need to keep your house or any other property as collateral. If you can't repay the loan, your property may be taken away by the lender.

Benefits of debt consolidation loan

Debt consolidation have several benefits. Some of the benefits are mentioned below:

1) Reduced interest rate - For the consolidated loan you have to pay a lower interest rate. The most common secured debt consolidation loan is the home equity loan or the second mortgage that you take against your property. As you are putting up a security against your loan, if you fail to pay off the loan, the lender can take away your home without even suing you. So, secured debt consolidation loans are generally available with low interest rates.

2) Single payment - Instead of making payments to multiple numbers of creditors, after consolidation, you are required to make a single monthly payment in order to pay off your debt. Earlier, payment to one or more creditors could be missed out by you as it is problematic to maintain several creditors at the same time.

3) Lower monthly payment - As your interest rate has been lowered you have to pay lower amount of monthly payment to your creditor. Thus, you will be able to save money. However, it is important to pay off thedebt quickly; otherwise you may end up paying more toward the interest.

4) Get cash within short period of time - With debt consolidation loans, you generally get the cash within a short period of time.

5) Tax breaks - Earlier when you were paying interest to your credit card bills, you were not getting any tax benefits from those. But now, as you're paying interest to your mortgage, this can be used as tax write-off.

6) Helps you improve credit - Once you start making payments after the consolidation, your credit rating will improve as your credit history will build up.

Other than all of the above advantages, debt consolidation loans also help you avoid filing bankruptcy. It is true that bankruptcy helps you to get out of your debt problem but it hurts your credit score and lowers it by 200-350 points. For more information you can visit here

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