Debt Consolidation Loan Hints
What is debt consolidation? Debt consolidation is the process
of obtaining one loan to pay off other non-secured consumer loans and
credit cards.
What is the purpose of debt consolidation? The object is to
obtain a low interest rate loan with low monthly payments, without adversely
affecting your credit rating or risking other assets.
As an added benefit, the maker of the consolidation loan should take
over all contact with your creditors, which should relieve you of any
further collection attempts from the creditors that were part of the
consolidation.
What is a secured loan? Any loan that has a provision for the
return or collection of an asset when payments are not made. Secured
loans are usually made for cars and houses. Secured loans on houses
are either first or second mortgages.
Secured assets usually have special rules applied to them in bankruptcy
preceding and usually cannot be taken from the consumer to pay off other
non-secured debts.
What is a consumer loan? A loan resulting from a shopper's
purchase that isn't secured to an asset. Consumer loans typically result
from credit card purchases and balance transfers.
When should I use a debt consolidation loan? A debt consolidation
loan should be used when your credit card payments become unmanageable
by normal budgeting methods.
Debt consolidation loans are one of many solutions that can temporarily
reduce debts. To prevent further debt from accumulating you will need
to change your buying habits.
What do debt consolidation loans cost? Their are many institutions
that offer free consultation and claim to be nonprofit debt consolidation
agencies. Typically, up front fees are not charged, but you should always
ask what fees will apply to the loan before you sign it.
True nonprofit agencies will want you to agree to a budget, and may
make you agree to let them manage your money.
What should you ask before getting a debt conolidation loan?
1. What fees apply to the loan? Small service fees are typical,
large commissions should not be paid. Be wary of any company that claims
it can reduce your debt, and avoid any company that wants to charge
you a large commission to reduce your debt.
2. What is the interest rate on the loan? This should be much
less than your credit card rates. A high interest rate will prevent
you from paying the consolidation loan off. Try to get a fixed interest
rate so your payments do not change.
3. What are the payments on the loan? The payment should be
lower than the amount you were paying before the consolidation.
4. Will the loan adversely affect my credit rating? Make sure
the loan procedures are explained to you before you sign the loan. Avoid
lenders that are not clear on this issue.
Obviously, companies that claim they can reduce your debts have a greater
chance of causing harm to your credit rating.
When shouldn't I use a debt consolidation loan? The object of
getting a debt consolidation loan is to ultimately improve your financial
situation.
Loans that require you to pay high fees, or promise large debt reductions
are extremely risky and should be avoided. Never pledge secured assets
(your car or house) to obtain a debt consolidation or other type of
consumer loan.
How should I go about finding a good debt consolidation loan? Shop
around. For all loans and bank services, it is always helpful and financially
rewarding to compare different companies' products.
Once you narrow down your search, use your favorite online search engine
(like www.google.com) to check out the
companies and find out what other people think about them.
