Out-of-control debt can make even the most wonderful existence a nightmare. Every month as your obligations show up in the mail or in your inbox, you dread opening up the bill because increasing interest rates and other charges make paying on your obligations an unending cycle. To make matters worse, you do not see a raise or any change in your financial picture any time soon making getting out of this cycle impossible.
You do have options though, one of them being debt consolidation. While this particular tactic to handling multiple obligations seems like a quick fix, quite a bit goes along with taking out a debt consolidation loan. These types of loan programs are designed to help borrowers better manage their debts, and there are a number of them out there. You can consolidate your loans through traditional banks or you can consolidate your debts with a loan from Latitude Finance or any of the plethora of independent debt consolidation programs.
To learn more about debt consolidation and how it can benefit you, keep reading below.
What Is A Debt Consolidation Loan?
A debt consolidation loan works to reduce the amount a borrower pays every month to settle their obligations. These plans are great for people who have a number of credit cards and other loans because it not only reduces the payment but in many cases, it reduces the amount they pay in interest monthly. Because borrowers are paying on multiple cards, the rates can mean paying an excess of interest. The consolidation loan combats paying excessively.
What Are Its Benefits?
Other benefits to debt consolidation programs are they can help repair your credit report. Every time you apply for a card, every time you are approved for credit, and every instance when you pay late or miss a payment your credit is affected. Furthermore, the more obligations listed on your credit report the lower your score. By streamlining your payments, you are more likely to pay on time and for only one bill.
How Does It Work?
Theoretically speaking, when taking out a loan of this type, you would close out your other accounts. Your existing debts are streamlined into one loan where you make one monthly payment. These types of loans work because it helps the borrower re-establish their credit while repairing some of the damage to the credit report.
What Types Of Loans Are Available?
The two main types of loans are the secured and unsecured loans. The secured loans require borrowers take out a loan with collateral (home, car, jewellery, etc.) Financing companies usually require borrowers with derogatory credit (charge-offs and delinquencies) to take out secured loans because their credit is too low, and they typically do not make enough to qualify for standard loans. The unsecured loan is similar to a standard loan that requires you place nothing down for collateral. With these loans, the financing company sets the interest rate based on your credit score, your income and loan term (length).
Who Would Benefit From Debt Consolidation Programs?
Anyone with multiple obligations that require them to devote an inordinate amount of their income to obligations would use debt consolidation. Typically, when financing companies advise consumers about debt, they point to the debt-to-income ratio, which determines how much debt consumers should have. If your debt-to-income ratio is such that you are paying so much out every month toward credit cards and other obligations, then the debt consolidation program would be beneficial to you.
Debt And Stress Relief
Debt consolidation programs are not the end all for borrowers who find themselves constantly battling debt. In fact, some programs also address the attitudes and behaviors that create this unending cycle of debt as well. The benefit to the consumer is a quick fix to a short-term situation that could have long-term financial consequences.