Are you facing debt problems and failing to manage them? It definitely makes you crazy when you spend your nights worrying about your debt payments, starting with a dozen credit cards you have been enjoying using. You should not end up on any settlement instantly. You must obtain accurate and sufficient knowledge to choose what’s best for you. It’s unwise to make a decision without doing proper homework.
Considering Your Options
If you are out of money and have to do something about your dues right away, look out for all possibilities. Bankruptcy is one option but you would be scared of loosing you assets as stated in Chapter 7 bankruptcy. No one wants to be in such a position unless there is no hope. You would have also tried talking to some credit counseling agency but all they could do is to lower your monthly payment a bit and lessen their harassing calls. This would be no good if your situation is serious. Here you are, ended up thinking about the best debt consolidation loan as you can find no other way out of your nightmares!
Analyzing a Debt Consolidation Loan
What is a best debt consolidation loan?
A best debt consolidation loan lets you merge all your credit card debts into a single debt. The benefit by doing this is that becomes a lower monthly payment, more affordable, and you avoid the hassle of dealing with plenty of loans separately. It basically makes your life simpler and easier.
Difference between credit card debt and a debt consolidation loan
The main difference between them is same as the difference between a secured and an unsecured debt.
These are debts that are secured by collateral such as a house or anything you own. The risk attached to such a debt is that you will eventually lose your asset if you fail to make your payments. It gives the lender the authority to sell the collateral.
These are loans that are not secured by any asset. If you fail to pay for them, the lender can do nothing but to hand you over to collection agency and ask you for payments. Credit cards are a type of unsecured loan.
However, it is not at all easy to meet the requirements for a loan to consolidate your debts. It requires a high credit score such as 700 FICO normally. Sometimes 740-760 is needed to obtain a low rate to make the consolidation useful.
Pros and Cons of a Best Debt Consolidation Loan
- As we mentioned earlier, the debt consolidation loan is an unsecured loan. If ever you fail to make your payments you merely have nothing to lose. You are not obliged to use your property, car, or any valuable asset against the loan. As debt consolidation loans are unsecured debts, a few companies that offer such loans include Lending Tree, the online lender and Instant Debt Consolidation Loans.
- Another benefit of such a loan is that it requires you to give fixed monthly payments. Well, this applies to a secured loan as well.
- When applying for a debt consolidation loan, you must make sure that you agree on a fixed interest rate. There are options of fixed as well as promotional interest rates. Certain banks and credit unions will try to convince you by tempting you with a special promotional rate. You should remember that such rates normally last only for around six months and then jumps into the stratosphere.
- A problem with unsecured loans like debt consolidation loans is that they are normally offered with a higher interest rate as compared to secured loans. In a secured loan, the lender feels protected because he knows that can has the authority to sell the collateral you offered him. In unsecured loans, however, is taking a bigger risk by giving you the money without exchanging anything. Thus, you will be charged a higher rate.
- Even the best debt consolidation loan has a downside! This is a just a means to merge your loans, therefore, the amount you owe is same as before. On the contrary, some companies manage to negotiate with credit card companies to reduce your total debt amount and sometimes lower monthly payments. Such companies are known as debt settlement or debt relief companies.
It’s better if you go for actual reduction in debt. National Debt Relief is a company ranked among top three debt settlement companies. Isn’t it great if you get a debt analyses and seek advice from them free of cost. They charge you nothing for advice. Only when they are able to negotiate a suitable settlement with your lenders they charge their fee. When you are already short of money, this seems like the most appropriate alternative.