What is debt consolidation?
Debt consolidation is an option where an individual gets a loan for the purpose of paying off their unsecured (ie. credit card) debt at one time. This can be beneficial for the individual because most times the loan will be at a considerably lower interest rate. It also allows the individual to only have to make one monthly payment instead of possibly several payments to their various credit cards or other unsecured debt creditors. The most glaring downside to debt consolidation is that the debt really isn’t being paid off but rather it is moved to a different vehicle. It still has to be paid off there.
What type of loans are used for debt consolidation?
Generally speaking, there are four basic types of loans used for debt consolidation purposes. They are: 1) a home equity loan, 2) personal loans, 3) credit card balance transfers, and 4) a bank debt consolidation loan.
How long do debt consolidation programs last?
The length of time that your debt consolidation program will last depends on which loan option you choose and are approved for as well as the terms of that particular loan’s contract. For example, a credit card balance transfer may take you 5 years to payoff whereas a home equity loan may take you 15 years to payoff.
How does debt consolidation work?
No matter which loan option you choose, they all basically work the same way. You are trying to trade in several high-interest payments for one low-interest payment. Before starting a debt consolidation program, you would gather the information (balances, interest rates, etc) of the debt you are wanting to payoff, get a total, then apply for the loan that best suits you. If approved for the loan, you would make full final payments to all the creditors you had selected.
How much can I save by going the debt consolidation route?
This maybe the most important question to answer before starting any debt consolidation program. You really must crunch the numbers and decide if this is the best option for you. Because honestly, this option may not save you any money and, in fact, may end up costing you more money over the long run. Even at a lower interest rate, making payments for 20 or 30 years (ie. through your home equity loan) may end up costing you more than if you had stayed with making regular payments for 5 or 10 years on your original higher interest credit card.
If you are considering debt consolidation, please go and visit the guys over at Debt Reset US. They are experienced and are truly invested in your financial well-being.