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Consolidation Of Loans - Important Facts About Consolidation of Loans - The basics of debt consolidation loans, The benefits of consolidation of loans

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Being in debt is never easy to handle, and it can be very tempting to decide that consolidation of loans is the answer. However, there are many things that must be considered by anyone who is considering consolidating their debt.

The basics of debt consolidation loans

Debt consolidation loans don’t actually get rid of the debt, but they do combine several loans into one monthly payment. Debt consolidation loans are the perfect way to take all of your credit card debts and combine them with your car payments, medical bills, and any other debts you may have.

The benefits of consolidation of loans

The biggest benefit consumers have from consolidation loans is a lower interest rate. Often credit cards will have very high interest rates, especially for those who have fallen behind on their payments. Debt consolidation loans usually come with just one interest rate that is quite a bit smaller than the rates on other types of loans.

Also consumers who consolidate their debt often find that they feel a little bit of stress relief because one bill is much easier to handle and stay on top of than multiple bills with multiple lenders are. They can even extend their payments if they find themselves unable to afford the monthly payments. Of course this will increase the amount of interest they end up paying in the end, but it is much less stressful knowing that there is always an option to reduce the monthly payments even further.

Another benefit from consolidation of loans is the fact that the monthly payment is fixed. It doesn’t change unless the consumer feels like he needs to extend his payments and lower the amount of money he pays on the loan each month.

The pitfalls of debt consolidation loans

Although all of these benefits sound good, there are also some problems with debt consolidation. For one thing, consumers may end up paying on their debts for a lot longer because they have combined all of their debts into one. Debt consolidation loans can cause consumers to pay more on their debt than what they originally had to pay, simply because they are paying for a much longer period of time.

Experts say it’s important also important to remember that 70 percent of Americans who take out a debt consolidation loan will end up with the same or higher debt load within just two years. Also, remember that a number of factors can affect how well the debt consolidation loan works. In most cases, these types of loans do not have any collateral behind them, so this means that the interest rate will be higher. Consumers may wish to turn to a home equity loan in some cases just so they can get a lower interest rate; however, this can also be a dangerous situation because they can lose their home if they do not make regular payments. Above all, it’s important to talk to a financial advisor to determine what type of debt consolidation is right for you.

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