If you are considering your options for paying off your debt, you might have come across consolidation loans as an option. Consolidation loans are a popular option for those looking for a better way to manage their debt however few people understand how they work. Here are a few things that you should know about consolidation loans
What They Are
A consolidation loan is a loan that allows you to pay off all of your other debt and roll those debts up under one loan. A consolidation loan is a fixed rate installment loan. This means that the lender will set up the loan, distribute the proceeds and then you will be responsible for making a fixed payment amount for a fixed period of time, just like a car note.
What Are The Benefits of A Consolidation Loan
The main benefit to taking out a consolidation loan is that because they are a fixed installment loan, they often offer much lower interest rates than other types of debt that you might carry. This means that more of your payment goes towards paying off the principle of the loan rather than to the lender. Additionally, because the amount of your payment is fixed, you are better able to manage your finances and monthly budget to ensure that your
Payments are on time.
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One of the hidden benefits is the instant credit boost you get when you take out a consolidation loan. While it is true that your credit score will take a hit when you take out the loan, you actually are able to quickly see big gains. This happens for two reasons. The first reason is that you are paying a bunch of debt off in full. So long as you don’t close these accounts, this looks great to potential lenders. And, even though you haven’t done anything about the actual amount of money you owe, because you have lowered your monthly payment, you can effectively reduced your debt to income ratio, which automatically bumps up your score.
What are the Drawbacks to Getting a Consolidation Loan
The one big drawback to taking out a consolidation loan is that because your other accounts are still open, you still have full use of them. For those who are not as committed to changing their spending habits while repaying debt, this can quickly turn into trouble as you might wind up having to pay your consolidation loan note as well as all of your other creditors.
It can also be tough to get a consolidation loan if your current credit situation is on shaky ground. This is because most consolidation loans are unsecured, which means that you don’t have to pledge personal property to secure the note. You might be able to offset some of the risk for the lender by offering to pledge collateral against the loan, but this is something that is up to the lender to consider.
Ready to take out a consolidation loan and get started on the right foot paying off your debt? Visit http://consolidate.loan/ and find a consolidation loan today and take control of your finances.
consolidation loans are a great tool for eliminating debt without the drawbacks of debt settlement and bankruptcy. Visit Consolidate.Loan today to learn more.