The Truth About Debt Consolidation
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The Truth About Debt Consolidation
Debt refers to money owed by the debtor to the creditor. It is expected to be repaid back to the creditor within a given time span and at an agreed interest rate generally calculated as a percentage of the principal sum per annum. Debt is classified as either secured or unsecured depending on whether collateral is attached to it. Debts that have collateral are said to be secure while those that are based more on a personal relationship and trust are said to be unsecured. Debts can at times go out of hand and become uncontrollable. However, certain options are available to borrowers to relieve themselves of immense financial strain. Such options include personal bankruptcy, debt relief, credit counseling, debt settlement and debt consolidation.
Debt consolidation is a type of repayment where the individual is given a chance to get rid of current debts by switching to a new loan. Generally, the debtor takes out a new loan to pay off multiple debts as in the example of payday loan consolidation. Debt consolidation is often good for relieving the borrower of the bulk of debt, especially those with high-interest rates. Most debt consolidation loans are secured as they require the individual to put up his property as collateral. This means that the lender can seize the borrower’s property in the event that the borrower does not meet a repayment. Some loans such as personal loans are another form of debt consolidation loans that do not require property as collateral.
Individuals willing to consolidate their loans have a wide range of debt consolidation companies to choose from. With the knowledge that debt consolidation companies can be very aggressive, the borrower should enquire about consolidation options from several companies before deciding to work with one. Some debt consolidation companies are not to properly carrying out their responsibilities. Others are out there to mislead individuals by taking a longer than usual period of time before starting the consolidation process. While at it, they charge high-interest rates and outrageous fees at the end of the month.
Debt consolidation for bad credit
For individuals who have a low credit score due to poor handling of debts or misinformation on the type of method to get out of debt may benefit from a debt consolidation loan. However, they are expected to pay high-interest rates for these loans as these high-interest rates act as a guarantee for the lender.
Why consolidate your debts
Lower interest rates
Credit card debts are often associated with high-interest rates. By consolidating your credit card debts with a debt consolidation loan, you will be able to get a cheaper interest rate which will let you save a lot on interest.
Improved credit score
Your credit score could be hurt if you continually make late monthly repayments on all of your debts. To save your credit card reputation, consider debt consolidation where you only have one debt to pay and by paying it promptly, you get to improve your credit score.
Stop collection threats
Individuals who are drowned in multiple debts are often late in making their repayments. This often prompts lenders to start making multiple threats. This is an embarrassing and stressful situation. To avoid that, consider taking out a single consolidation loan that wipes off these multiple debts and relieve you of debt collection threats.