Have you got a lot of debt? Are you getting tendinitis from writing out so many checks to your various lenders every month? Have you heard commercials about debt consolidation loans and wondered if they were right for you? Then let’s talk about debt consolidation loans – what they are, what they aren’t, and why they’re used.
First, know that a debt consolidation loan doesn’t erase any of your debt. You’ll still owe the same amount that you owed before. That amount will, however, change shape and trade hands.
With debt consolidation, you “give” your debts from various sources to a third-party debt consolidation company. In turn they pay off your credit card balance, your auto loans, or student loans – you now owe the money to the consolidator rather than each of your lenders.
Some people find this helpful because their lives are simplified. Instead of 5, 10, or 15 checks to write out every month, they only need to write one and be done with it. Those with difficulty organizing their bills or with a history of missing payments due to forgetfulness might really benefit from the services of a loan consolidation company.
Others like to consolidate their debts because they have the option of lengthening out the loan terms. Let’s say that your monthly student loan payment is $200, which you’ll be paying for the next 10 years. By consolidating, you could lengthen out the payments over the next 20 years, reducing your monthly payment to $120. Do the math and you’ll see that in the long run you’ll be paying more total money in interest over the life of the loan, but it will free up $80 a month for you in the here and now if you need it.
Be careful when consolidating your debts. Watch for scam artists who promise you an amazing deal when consolidating. They can take your financial information and you could become a victim of identity theft or worse. Also be on the lookout for companies that surprise you with hidden charges – it could end up that you actually pay more after consolidating than you did before if you aren’t careful.
With debt consolidation loans, there are a variety of circumstances that may make it a smart choice. But always proceed with caution and evaluate all of your options before making a decision.