If you are feeling bogged down in debt by having many small loans and such as credit cards, the consolidation loan can take a huge weight off your mind and help you to get back on top of things and heading towards paying off your debt. However if you don’t know what you are getting yourself into then consolidating your debts can just help you to dig the hole deeper and leave you struggling even more.
If you consolidate your debts the right way then you could end up paying a much lower monthly repayment although this might be over a longer period of time, so you should take this into account when it comes to knowing how much you will be paying back in total.
One big problem with the consolidation loan and which approximately 80% of people who take out a loan to consolidate their debts fall into the trap off, is using the loan for other than debt consolidation and running up further debt. The other problem with them is that once the majority of money has been used to pay off your creditors then it is very tempting to quickly get back into debt by taking out another loan or running up your credit card bill again.
When choosing a consolidation loan the first thing you should look out for is the amount of interest that you will pay on the loan. This of course will vary from lender to lender and shopping online is the best way to get quotes from various lenders before deciding which deal is the best for you.
As with the majority of loans there are different types available, two of the most popular are the secured and unsecured consolidation loan. The secured loan means that you have to secure something, which is usually your home on the loan, while the unsecured allows you to borrow money without putting your home on the line.
The best loans will allow you to repay varying payments without penalty, for example if you take the loan for 10 years and find after say 4 years that you can afford to repay more off the loan and pay it up early then some lenders will add a cost onto the loan for doing so. Where possible look for a loan that allows you the freedom of paying more while not giving you a penalty should you pay it up early.