Debt consolidation is a solution of personal financing in which all the small debts from various lenders are consolidated to single debt and then that single debt is paid for. Debt consolidation loans are generally of two kinds home equity loans and personal loans. In home equity loans creditor will lend you against your property, and if you default in your payment, the creditor can recover by selling your property. Since this is secure type loan so, your interest rate will be low i.e. 9% to 12%. In the other case, your loan will be sanctioned by your earlier financial performance since this is not a secure loan so that the interest rates will be higher i.e. 12% to 15%. This is the best solution for those individuals who are stuck in payment cycle of high-interest rate payments each month.
When a major amount of income is drawn to debt payment, a person is forced to have another debt to meet routine expenses which not only increase the total loan amount but further inflated the interest payments.
If anyone is in this situation, then finding out debt consolidation is the perfect path for him and he takes advantage of credit terms agreed with their lenders. You will have fix tenure, flexible loan at reasonable interest rate. Taking an effective debt consolidation requires engaging with a reputable debt consolidation company. They will pay your debts owed to various creditors, and all you have to do is make one payment to them at a comparatively low-interest rate.
Benefits of Debt Consolidation:
Following are some benefits of debt consolidation:
- Instead, to multiple payments of varying amounts at different interest rates, you will pay a single amount
- This single payment will be about half of that you previously had paid
- Your late fees and higher interest rated are often eliminated
- Your total debt load will be reduced to zero pretty quickly
Drawbacks of Debt Consolidation:
Along with benefits there are some drawback of debt consolidation
- Your credit will be put to stop
- If your situation do not match the proper criteria, then you can not avail this service
- You end up paying more interest amount