You will come across a lot of blogs, articles, and reviews on different sites praising debt consolidation and recommending it to all people who want to get rid of their multiple debts in quick time. True as it may be, these intuitive materials do not say anything about one thing which ideally is very important: this is also another loan that you take. The only difference is that it does not add to your loan account number but on the contrary, it reduces the number of loan accounts against your name. And that is all about that!
- It will note reduce the outstanding loan amount
- You will need to repay this loan or face consequences and
- It will not do anything more than making your monthly payments smaller and simpler.
Therefore, before you jump on to any conclusion or start favoring debt consolidation loan, ask yourself one question: are you ready to take it on.
In addition to that, you should ask a few other questions that will help you know about the pros and the cons of debt consolidation loan along with all other details and intricacies.
First the basics
Debt consolidation happens to be the most recommended debt relief option offered by sites like NationaldebtRelief.com to the people looking to manage their debts more efficiently. This is a loan that has the following features:
- It helps you to combine all your debts into one single loan thereby requiring you to make only one monthly payment
- The rate of interest will be substantially lower than the average rate of interest of all your existing loans combined
- It will come with more favorable terms making your monthly payments low and much simpler than all your debts combined
- The ultimate amount you pay on this new loan can be substantially lower than all your existing loans if you continued to pay them separately thereby saving you a lot of money and
- With the loan payment process and schedule more streamlined you will not have any scope of missing out on paying any monthly bill.
While these features are also considered to be the upsides to debt consolidation loans the downsides of debt consolidation loans can be summarized as follows:
- You still have the risk of accumulating credit card debt again if you do not lead a disciplined life and abstain from using your credit card rampantly. Moreover, if you take on a mortgage based consolidation loan it may accumulate more debts ‘under the rug.’
- You may also end up paying more on interest over the life of the loan if you do not take out a suitable loan for that matter. Longer loan terms such as mortgage will take away much more than a shorter personal loan in the form of interest.
- If you do not change the way in which you manage your money or spend it after consolidating your loans you will not find things to have changed much. In most of the times, it is seen that the extra cash flow debt consolidation loan creates is soon eaten by the poor spending habits of the consumers.
Therefore, taking out a debt consolidation loan will mean you will need to be more diligent to make it a success.
The three questions
Now, you should focus on the three questions that you need to ask yourself before you get a debt consolidation loan. This will eventually help you to make the best financial decision possible.
The necessary changes:
In order to make your debt consolidation a successful endeavor, you will need to make a lot of changes in your lifestyle. Ask yourself whether or not you are ready to make these changes or have you made such changes already.
- You will first need to identify those circumstances and habits that have put you into debt in the first place.
- Find out whether or not you are irresponsible with your money and whether you have been overspending.
If you carry on living over and above your means then you will soon start using your credit cards to meet your demands putting you back to square one even after you take out a debt consolidation loan.
However, sometimes debt situation may also arise due to situations that are beyond your control such as sudden loss of your job or any unexpected illness or injury. In such cases, you must make sure that your situation has improved before you take on further obligations to make your financial situation even worse.
Type of loan:
The next question you should ask is regarding the type of debt consolidation loan you have chosen. It should ideally be the right type of loan for you and should not cause any hindrance in its repayment or in following your monthly budget. This is an important aspect to consider as there are different variations of debt consolidation loans that are available in the market and for the consumers to consider.
- If you take on a mortgage loan, it may provide a larger amount but will come with the risk of putting a larger and more valuable asset at risk.
- If you choose a secured personal loan once again you put yourself at risk of losing your home or asset to foreclosure.
Such situations can cause significant, monumental or catastrophic effects leaving you with no place to stay.
Therefore, make sure that you are not inviting further risks while you take on a new debt consolidation loan. Ideally, an unsecured personal loan happens to be the best form of the debt consolidation loan to take on, provided your debts are not too large and you can repay the loan back quickly and efficiently.
Asking about the other options is the last question to ask that maybe even better than a debt consolidation loan given your current situation, especially if you have been facing money problems for some time.
DIY debt management and repayment can be a suitable option in such cases provided you are willing to work hard and remain diligent.