Top 9 FAQs About Debt Consolidation Loans
Debt consolidation is an often misunderstood form of managing and eliminating your debts. It’s misunderstood for a couple of reasons. First, debt consolidation is a complicated topic with a lot of moving parts. Anytime you’re dealing with a large amount of money and multiple different financial entities, things are bound to get complex before too long.
Second, there is a lot of misinformation out there about debt consolidation. The industry, unfortunately is bound with untrustworthy companies that play with the numbers to the point of having to lie to their customers.Rest assured though for the number of bad companies, there are much, much more honest ones out there, its just a shame the lime light keeps them in the public forum.Rilsonav (CC0), Pixabay
To help you, we’ve put together a list of the top ten frequently asked questions that we hear about debt consolidation. Our goal is to help you make an informed decision when it comes to managing your debt.
1. How does debt consolidation work?
With a debt consolidation loan, you work with a lender to take out a personal loan that is large enough for you to pay off all of your various debts at once. Once you pay all of those debts off, then the only debt payment you have to worry about is paying off the loan. In other words, you’ve consolidated your debt.
2. How do you know if you need debt consolidation?
Debt consolidation is a great way for a lot of people to get out of debt. But it’s not for everyone. How do you know if debt consolidation is right for you? The most common type of debt that gets consolidated is credit cards.
Debt consolidation makes sense if you owe a lot of debt to several different creditors. . Large forms of debt like student loans or mortgages can sometimes be consolidated, but they usually need to be dealt with separately from other forms of debt.
3. What are the pros and cons of debt consolidation?
Even if you do owe money to multiple different creditors, debt consolidation might not be right for you. Here are some basic pros and cons to help to guide your decision.
Debt consolidation helps you to stand back and take a breath. By consolidating all of your payments into one, you’ll have a much easier time managing your finances.
Debt consolidation, especially debt consolidation loans, can be hard to get if you have bad credit. Potential lenders look to your credit score to determine if you’re safe to lend to. credit scores are often tied to missed debt payments, a lot of people who could really benefit from debt consolidation end up with bad credit and don’t qualify for decent loans.geralt (CC0), Pixabay
Often, the kind of debt that’s well-suited for debt consolidation is credit card debt. It’s all too possible to open up multiple different credit cards and run them up without realizing what you’re doing.
4. What’s the difference between an unsecured loan and a secured loan?
Debt consolidation loans can come in two different varieties: unsecured loans and secured loans.
With unsecured loans, the lender is lending to you based on your credit score. They take a look at your credit score and financial history and determine that you’re a good investment or not.
With secured loans, the lender isn’t quite so certain. Perhaps your credit history isn’t perfect or they see something in your financial picture that gives them reason to doubt that you’ll be able to pay off your loan in a timely manner. So they ask you to “secure” the loan by putting up a piece of collateral, like your car or your home. If you can’t keep up with your payments, they’ll take the collateral instead. It’s security that they’ll at least get something out of the deal.
5. Can debt consolidation save me money?
Yes, debt consolidation often saves people quite a bit of money. While it’s not guaranteed that you’ll save money, it does happen pretty often.
6. Is debt consolidation guaranteed to work?
No, consolidating your debt is no guarantee that you’ll get out of debt, and don’t believe anyone that says otherwise.
You are what gets you out of debt. Debt consolidation just makes it easier. But it’s up to you to hold back on overspending with credit and get your finances in order.
7. What kind of options do you have for debt consolidation if you have bad credit?
As we’ve already discussed, it can be tough to get a debt consolidation loan if you have bad credit. A secured loan might be a possibility, but you might find it to be too risky due to the fact that you’re asked to put up a hefty amount of collateral to qualify.
8. What’s the difference between a debt consolidation loan and debt management?
With debt management, you aren’t actually borrowing money to manage your debt. Instead, you’re working with a third-party to develop a plan for managing your debt and becoming debt-free in a realistic time.
9. What’s the difference between a debt consolidation loan and debt settlement?
With debt settlement, your goal is to get your creditors to accept less than the total amount of your debt as repayment. In other words, you offer them some level of reimbursement and then ask them to “settle” the rest of your account.
Well there you have it, I hope this helped you with these types of debt tools to discover debt consolidation.
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