The pros and cons of a debt consolidation loan
2007-06-05
Are you trying to resolve your financial problems? All your credit cards are maxed out? You have a car loan, consumer loan, a house payment and still want more? You are asking yourself if you're ever going to get out of this mess and still can't find a suitable solution. Maybe there is a way. Read this article and keep a loan calculator close.Debt consolidation loans are a good solution in this matter. A debt consolidation loan will help you transfer all your initial loans into one loan.
Even though it may sound like the best solution and many people recommend it, let's have a better look at them and discuss their qualities and flaws.
Qualities:
1. All in one: For the average citizen it's very hard to keep track on all his finances and payments. He usually has to pay over 11 creditors and that means extra time spent for making all the payments. A debt consolidation loan only requires one payment.
2. Interest rates diminished: First let's have a look at the main difference between having credit cards or a debt consolidation loan. A credit card is an unsecured debt and has a larger interest rate. A debt consolidation loan has smaller interest rates because it's a secured debt. The reason that the debt consolidation loan is secured is that you guarantee for it with an expensive asset (in many cases your home).
3. Monthly payments: By having a debt consolidation loan you automatically have your monthly payments reduced, since you pay smaller interest rates.
4. One creditor: Having only one creditor makes it easier to solve possible issues or problems. By this you don't spend more time dealing with your financial problems.
5. Other taxes: By having a debt consolidation loan you can use your interest to cut down your other taxes. The interest that you would have paid for your credit cards wouldn't have helped you do the same thing.
Flaws:
1. Old habits die hard: Once your financial problems are solved there is another concern to be dealt with. You may find yourself filling out your credit cards again and sooner or later be in debt.
2. Pay off time: Usually a mortgage is made between 10 to 30 years. You may start to think that it would have been a better idea to try and fix your credit card debts over the course of several years, than to spend so many years to pay out your mortgage.
3. Spend more in time: If you make a brief sum you will see that you spend more in 30 years of mortgage then you would have, if you tried to pay your credit card debts in several years.
4. Lose everything: If you make a debt consolidation loan and guarantee with your house then you must be careful with paying your every interest. That’s why it’s called a secured loan. If you fail to pay your interest, then you will lose your house.
The debt consolidation loans could be the solution for you, but before you make such an agreement be sure to take into consideration the statements above and reach the best decision in your case. And keep a loan calculator always open.
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