If you have multiple loans, just like everyone else, it is important that you figure out a way to settle them immediately. According to many financial experts, it is a consolidation of several loans into a single loan repaid with a new interest rate. With consolidation loans, you can benefit from lower monthly installments and a longer loan term or repayment period. If you feel like getting a consolidation loan to clear your debt, it is important that you know not only the positive, but the negative sides of such an approach.
Pros of Consolidation Loans
By opting for a consolidation loan, you need to worry about paying just one lender who will get in touch with all your creditors to discuss or negotiate the repayment of your debts. In short, you will be given the opportunity to avoid feeling embarassed when facing your creditors.
All your debts come with corresponding interest rates which are set by the creditors. This means that there is a huge possibility that your lender can offer you a lower interest rate. As a matter of fact, legit lenders may even be able to eliminate any late fees you may have incurred with your debt.
Several credit debt problems could make you the target of collection agents. This is something you would want to avoid as they never stop bothering you and reminding you about your debt until you respond by making a payment. But if you work with a debt consolidation firm, you will not be disturbed by any collector again.
Not everyone is advised to get debt consolidation loans with guaranteed approval. Those who get it are actually required to refrain eg. from using their credit cards as often as they used to. So if you cannot give up on them, this loan is not for you.
Just like many types of loans, debt consolidation loans require security or collateral. This is especially the case with debt consolidation loans with guaranteed approval. You can only use lower interest rates if you can offer something to secure your loan. The risk here, however, is that if you fail to make your payments for your debt, the property you put up as collateral will be seized by your lender.
As mentioned previously, most lenders require borrowers to offer any of their property as security for a consolidation loan. In most cases, lenders only accept home equity loans, which means, borrowers need to use their home equity as security. This is very risky because not keeping up with monthly payments could mean losing your home.
Cons of Consolidating Your Debt
If you are struggling with your large debts, it is imperative that you seek an effective financial management strategy. Debt consolidation is just one option, and there are many others you may consider. So take the time in weighing your options so that you may end up with the most effective strategy for you to deal with all your debts.