Debt Consolidation Loans

Debt Consolidation Programs 101

Debt consolidation is one of many solutions you can use to manage your debts. It involves using a loan to pay off your debts. Then, instead of mailing checks to several different creditors and lenders, you send one check that pays off your debt consolidation loan.

Why Debt Consolidation?

Many people choose debt consolidation because they want to cut down on the amount of paperwork they have to deal with every month. When you have multiple debts, you have multiple billing statements and multiple checks to write each month. Debt consolidation drastically reduces this paperwork.

When it’s done right, debt consolidation also lets you pay off your debt at a lower interest rate than if you let your debts stay separate. This lower interest rate means you’ll also have a lower monthly debt payment.

Debt Consolidation vs. Credit Counseling

Because debt consolidation leads to a single monthly payment, it’s often confused with consumer credit counseling. However, these are two separate debt solutions and different circumstances would lead you to choose one over the other. Credit counseling allows you pay off your debt under a debt management plan while debt consolidation is a loan.

Where to Get a Debt Consolidation Loan

There are several ways you can get a debt consolidation loan, though some of them may require you to have better credit than others. For example, you can get an unsecured bank loan which would require you to have a good credit score. Or, if you have equity in your home, you can use a home equity loan or second mortgage. The home equity route sometimes has less strict credit requirements.

You may be able to borrow money from your 401k or against your life insurance policy if you have either, but there are some financial drawbacks to these methods. For example, if you borrow from your 401k, you’ll have to pay the money back within a certain amount of time or face early withdrawal penalties.

Choosing Debt Consolidation

Debt consolidation won’t fit every single debt situation, but it will help some people get out of debt. To decide whether using a debt consolidation loan is right for you, make sure you understand both the benefits and the risks of consolidating your debts. The next step is calculating your total debt, then figuring out whether you can get a loan that will pay off all your debt. Once your debt is consolidated, you have to be careful not to get back into debt with all your newly available credit. Make your debt payments on time and in a few years, you’ll be completely debt free.

Check out these articles on debt consolidation to help you get started:

1. How to Know if Debt Consolidation is Right for You
2. Benefits of Debt Consolidation
3. Debt Consolidation vs. Credit Counseling
4. 6 Ways to Consolidate Your Debt
5. Risks to Avoid With Debt Consolidation
6. Choosing a Debt Consolidation Loan
7. Tips to Spot a Debt Consolidation Scam

If you want to get out of debt, but aren't sure what your plan should be, then click here and read the debt consolidation plan.

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