A debt consolidation loan can be a great way to take control of your debts. You can pay several loans at once, leaving you with just the one loan payment each month. This is convenient and much less over whelming than trying to manage multiple payments each month. You may also be able to get a lower interest rate if you own your home and are able to get a home equity loan to pay down the debts. Chances are your rate will be lower and you can save a lot of time and money when you consolidate your debts.
Advantages of Debt Consolidation
1. One payment – Its easier to manage one payment a month than trying to juggle multiple payments with multiple due dates. To make it even easier, you can arrange to have the funds deducted from your bank account each month. This can be a real advantage if you struggle to stay organized.
2. Lower interest rate – When you use a home equity loan to consolidate your debts, the loan is secured by your home so chances are your interest rate will be much lower than the rate you are paying on credit cards or other high interest loans.
3. Lower payments – Lower rates with a longer loan period mean lower monthly payments for you. Since your monthly payments will be lower, it is best to use any additional “extra” money you have to pay the loan off faster or build up your savings. For the best results, set up your loan period for the shortest time possible.
4. Taxes – In many instances, the interest on a home equity loan is tax deductible. Make sure you do your research to see if this applies to your situation.
Disadvantages of Debt Consolidation
1. Potential for more debt – Unless you address the root cause of how the debt was incurred, once your debts are paid off, you may be tempted to continue to spend. This will only cause you further issues down the road as you continue to accumulate debt. Pay attention to the reasons why you got in debt and avoid that behavior in the future.
2. Term of the loan – It is common for people to take out a loan for long periods of time which increase the total amount paid on the interest on the loan over time. Avoid long term loans and try to get a loan with the shortest term possible. Work hard to pay extra on the loan each month to pay your debt down faster.
3. Your home is at risk – When you don’t make the payments on your home equity loan, the bank will come after your home. Make sure you are disciplined enough to only borrow what you need and pay the debt back quickly. Make all payments on time and avoid getting behind on payments.
There is also the option of getting an unsecured loan from a place like title loans Ohio to consolidate your debts. As with any financial service, be sure to look around for the best rates before you take the plunge.