Steps In Applying For Debt Consolidation Loans

October 20, 2011 by  Filed under: Debt 

The purpose of debt consolidation loans is to lump together several debts into one payment through the assistance of a third party better known as a financial institution. The role of the financial institution would be to officiate an intervention between the debtor and his creditor. When this happens, debtors will only be making a single payment to their chosen financial institutions who in turn distribute payments among the listed creditors.

However tempting it may seem one should only opt to use debt consolidation loan when one finds it difficult to manage several debt payments. This type of debt relief allows for easier payment by combining several outstanding debts into one. Also, if the one drowning in debt is unable to come to terms with several creditors.

The Risks

The risk there is with a debt consolidation program is that it could take longer for a debtor to pay off his debt. This is also as a result of the high interest rate charged by the loan itself. Throughout its duration, a debtor will actually be paying more than if he has tried using other means of paying off his debts. That being the case, one can opt to seek the services of consumer credit counseling so he can try work out a budget plan with which he can stick with. He can also try putting together his own debt repayment plan if he can try negotiate a lower payment scheme with his creditors.

Qualified Debtors

Not everyone can qualify for debt consolidation loans particularly debtors who will have to pay off with a secured debt. And if they are, debtors need to bear in mind that although the monthly payment is significantly lowered, the payment duration is lengthened. However, if a person is set to take out a new loan in order to pay off his debts, he must have a checklist on the things that he needs to consider.

Debt Consolidation Loans Checklist

Its Benefits

One of the main benefits of debt consolidation loans is its ability to reduce stress knowing that several unsecured bills will be lumped together as one. A debtor will then be managing a single loan which he will be paying through a repayment plan. Budgeting becomes easier since the debts will be put as a long term loan with a low interest rate.

Once the bill payments are straightened out, a debtor will effectively avoid getting harassing calls from collection agencies. Being able to pay off debts on time will also have a positive impact on one’s credit score rating.

Guide in Choosing

The first thing a debtor needs to determine is the total outstanding balance of several of his debts combined. He can effectively do this by remembering to include calculating the interest rates on the existing bills. The next thing he would need to do would be to shop around for a potential financial institution.

By then, a debtor should be able to compare who among them could offer considerably lower debt consolidation loans. After finding one, a debtor must always make sure to read the fine print and asses the fees before finalizing on one financial institution.

Get help with debt settlement programs. Discover more about credit card debt online.

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