It is the dream of all debtors to breathe the air of financial freedom. Loans may be oppressive and heart-wrenching, but they can be quite handy when we find ourselves in several financial dilemma.
Do you plan on purchasing a house but lack the finances to buy the house outright? Get a Mortgage loan! Do you need money to take care of an emergency medical bill or to fix that huge leak on your roof? Get a personal loan! Do you need to purchase a car but lack the finances to buy the car outright? Get a car loan!
50000$ Debt Consolidation Loan Pros and Cons:
Pros:
- It helps pay off what you owe in time
- It has lower borrowing rate
- It can boost your credit rate
Cons:
- It may elevate your financial struggle
- It requires a collateral which may put you in a tight spot if you fail to meet up with payments
Loans have made it possible for individuals to fulfil their wish irrespective f their current financial status. But while obtaining loans can be a means to a good end, it can as well make life miserable for you.
You may feel happy and overwhelmed when that loan application of yours was approved but do you have a plan regarding how to repay your debt especially when things don’t work out well for you? Obtaining a loan can be easy but repaying the loan is the hardest part. If you have accumulated lots of debt and you are very keen on repaying the debts in due time, there are a few ways you can get that done depending on the circumstances you face.
The basic rules of getting out of debt revolves around two things: cut down your spending and/or augment your Income. People adopt several strategies when dealing with their debt and one of the most effective of them all is debt consolidation.
Debt consolidation is a repayment strategy that involves you merging your existing loans into a single loan with a lower borrowing rate and a lower monthly payment. It is quite simple. You combine your dues (debts) then take a loan to repay these debts. This strategy reduces stress and it helps streamline the repayment process. But as we know, everything has an advantage and disadvantage.
$20,000 Debt Consolidation Loan Pros and Cons:
If you have accumulated debts that amounts to $20,000, you can pay them all by simply merging them then taking a $20,000 debt consolidation loan. That’s all. You can pay off those oppressive dues in a jiffy with this method. It saves you the stress of having to divide your focus on your debts. Here, you have just one due to focus on.
Pros:
- It has an improved repayment term; one that favors you
- It comes with lower interest rate
- Helps you pay off your loans in time
- Can enhance your credit
- It comes with a fixed borrowing rate
Cons:
- It can get you into deep into financial mess
- You may pay higher borrowing rate
- There may be some upfront costs
Though this tactic helps, it is advised that you weigh the advantages and disadvantages before you make your decision so you don’t get caught up in something bigger that your previous financial problem.
$10,000 Debt Consolidation Loan Pros and Cons:
Taking a $10,000 debt consolidation loan to consolidate that credit card debt of yours is a very good step towards paying off your debts. It reduces your headache by merging all your debts into a single debt. So rather than thinking of multiple creditors and monthly payments, you have just one and creditor to worry about. Taking this loan may seem like a good idea, but it also has few downsides. Below are some advantages and disadvantages.
Pros:
- It can help simplify your paying bill
- It can reduce your monthly payment and make it more manageable
- It comes with a lower interest rates
Cons:
- You may pay over the life of the loan
- It can put you in a bad spot due to the collateral involved
Before you apply for this type of loan, ensure you do your homework. Consider factors like the interest rate and other requirements involved. If you have about 8 diverse debts with diverse interest rates, do your maths to ensure if you’d be better off taking the loan. You could also seek advice from a financial expert.
$5,000 Debt Consolidation Loan Pros and Cons:
If you have few debts that amount to $5,000, you can take a $5,000 consolidation loan to pay off the debt quickly. A $5,000 debt may seem small to you, but if not well managed such a debt could take you years to settle because of increasing borrowing rate and probably late fees that arise when you fail to meet the repayment deadline. T
Pros:
- It makes it simpler for you to settle your dues
- May come with lower interest rate
- It helps reduce your monthly payment
- It doesn’t affect your credit rating
- If pay quickly, may raise your credit rate
Cons :
- Increases your overall debt
- There may be some upfront costs
- It may put you under intense pressure if interest rate skyrockets unexpectedly
Ensure you review the ups and downs carefully before you make your decision. Sometimes, you may not require this type of loan to repay those debts of yours, what you need may just be a good debt management plan.
Your Credit Score and Interest Rate:
Your credit rate lays a key role in your merger loan interest rate. The higher your credit score, the lower your borrowing rate; while the lower your credit rate, the higher your interest rate. This applies to all loans. For instance, mortgage lenders look at two major things when considering your application. They look at your credit rate and your credit report. If you have late payment on your credit report, lenders may not be willing to help you due to the risk involved.
Though criteria vary for each lenders. For instance, a lender may offer you a mortgage if you have a closed account, while others may decide not to. Or a lender may consider your request to change your mortgage due date while others may not.
What are the Disadvantages of Debt Consolidation?
Many debtors use debt consolidation loans to get out of their credit card debt, or mortgage debt and it has worked well for them. This repayment tactic is quite effective. By combining those numerous debts of yours into one single due, you are directly reducing the burdens on your neck. You have less creditor and repayment dates to worry about and you can also save some cash each month.
One of the core disadvantage of this debt relief tactic is that, it can worsen your situation if you fail to tackle the problem that got you into the debt In the first place.
By taking a DCL, you may end up paying a borrowing rate that is higher than the combined rate of the debts you consolidated. This can happen due to several factors, like your current credit rate, the loan term, etc. Most people take consolidation loans because they want to free up cash every month or because they want to focus on just one debt.
Another disadvantage is that, you may end up getting trapped in a consolidation scam. There are lenders out there who market this type of loan to individuals who are in certain financial trouble. Unfortunately, many of these loans are not very consumer friendly.
Taking debt consolidation loans is a very good idea, but ensure you are very aware of what you are up against before venturing into it so you don’t get surprised.
Do Consolidation Loans Hurt your Credit Score?
Your credit rate can receive a hit in several ways: if you make late payments or if you miss a payment, your credit score could reduce drastically.
Because lenders consider factors like your credit rate (among other factors) before approving your request, having a low credit score could damage your hope of obtaining a loan.
As we know, this repayment tactic has its disadvantages, and one question people often ask regarding this loan is its ability to affect their credit score. Can this loan really affect your credit rate?
Consolidation loans do affect your credit score. But one thing you should know is that it won’t have a significant effect. When you tender an application for a loan, banks carry out a hard credit drag, this can initially wreck a little havoc on your credit. Also, debt consolidation has a way of enhancing your credit.
If you take out a credit and you repay it on time, you will be actively growing your credit and enhancing your credit rate as well. As soon as you are done with repaying your loan, your credit rate should be at the same level, if not more than it was before.
How can Debt Consolidation Hurt your Credit?
This repayment strategy can hurt your credit in the following ways:
- If you consistently make charges on your credit cards after paying off your balances
- If you are 30 or more days late on your repayment
- If you apply for loans that you aren’t eligible for (Making several credit enquiries in a short period of time could hurt your credit )
What are the Advantages of Getting a Debt Consolidation Loan?
With several individuals and families in debt, debt consolidation makes the repayment process quite easy. Debt consolidation boast of several benefits which is why it is a well-known repayment tactic adopted by several debtors, especially those who want to get out of debt fast.
Advantages of Debt Consolidation Loans are:
- It helps you repay your due fast
- It helps in simplifying your finances
- It has a lower rate compared to what you are currently paying on your credit card
- It can boost your credit rate
- It has a fixed repayment schedule
- It is less stressful
- Turns multiple payment into one payment
Let’s take a good look at some of these points:
Turns Multiple Payments Into One Payment:
Debt consolidation is all about merging your debts and then taking a credit to pay them off. This makes paying off those debts of yours quite easy because you only have to focus on paying one debt. If you are like most individuals who have several credit card balances, merging everything into a single source will make you feel a little relieved. Of course, your debt is still there and hasn’t been trimmed in any way, but with several payment deadlines gone, you can aim your attention on just one debt.
Has Lower Interest Rates:
Many unsecured debt boast of high-interest rates that can add to your debt. By consolidating your debts, you will be paying less interest on your single account, if you have a good credit rate.
Is a Debt Consolidation Loan Worth It?
Debt consolidation, as we have learnt, is a good way to get out of debt; but like other repayment strategies, it has its advantages and disadvantages. So, it brings us to the question: Is debt consolidation really a good idea?
Debt consolidation is definitely worth it, but it depends on your financial situation. This option is effective for getting people out of debt fast, but it isn’t a good option for everyone. Before you adopt it, understand your financial situation. If you decide not to, you may end up getting into trouble.
With a proper understanding of your financial situation, you should be able to determine if this option is something you can commit to (without any difficulties) or not. Do your homework before you make your move.
Loans:
If not for the availability of loans like personal loans, mortgage loans, etc., lots of Americans would have suffered. Many Americans would have been homeless, several students would have dropped out of school due to lack of tuition fees and lots of people would have found it hard to finance emergency bills. Thanks to loans, we can fulfil our financial obligations even when out of cash.
Since its inception in the 1930s, mortgage has been of a great help to several people assisting them acquire the home of their dream. But obtaining a mortgage isn’t easy, as well as repaying it (if you are eventually given). The same goes with personal loans. Obtaining personal loan isn’t easy as well. Banks look at several factors before approving your application for a personal loan. When it comes to comparison, personal loans are usually smaller than mortgage and home equity loans (read full post here).
Also, when considering applying for any credit, ensure you go for the best lender, that is, one with favorable criteria or requirement. For instance, lender A may be willing to offer you a credit with no employment but large deposit while lender B may not like the idea. Or Lender A may charge you a higher late fees when you are 60 days late on mortgage while Lender B may not. How these lenders operate is quite different so ensure you do your homework on lenders with favorable criteria. Also, to avoid making unnecessary mistakes that results in you being punished, ask your lender questions when not clear on certain things. If you don’t know what to do when your mortgage payment falls on a weekend, ask your lender so you don’t become unfortunate.
Conclusion:
Lack of budget is one major reason why people get into debt. Of course, taking a DCL is a good way to get out of debt, but if you refuse to tackle the root cause of your debt, you will find yourself in a debt cycle.
Aside from obtaining debt consolidation loans, another way to get out of debt is by seeking for professional help. This help usually come in the form of a programs which are designed to help people with financial struggles and debts. Several people have enrolled in these programs and it has worked well for them. Don’t think too much, do your research and enroll in one.
While in debt or while paying your mortgage, it is best you take certain measures to ensure that you aren’t wasting money. You will certainly need lots of cash during this period. One of the best ways to restrict the way you spend and halt the accruement of debt like credit card debt, is by limiting the way you use your credit cards. Or you can consider hiding your credit cards. Some keen people go as far as breaking their credit cards to ensure that they don accumulate more debt on them.
