In today’s society and economy, chances are that many people are going to end up with several loans simultaneously at some point of their lives. The idea is unsettling and it is perfectly normal for people to feel anxious what it would take for them to pay off all those debts their interest and keep track of the repayments. However, there are a few options which can make the payoff process easier and possibly even faster, thanks to debt consolidation loans.
There are various types of loans such as student loans, consumer loans, commercial real estate loans, and so on. If you have taken a loan or two you might have heard the terms debt consolidation and debt consolidation companies and consequently asking yourself what do these terms mean.
Pay off one single debt, instead of many
Debt consolidation is another form of loan which is a way to refinance all your existing debts, leaving you to pay off one single debt, instead of many. And you would probably ask yourself why would I need that? For once, there is the convenience of paying off just one debt, and not thinking about several ones. The second advantage is that it can lower the interest rate of the whole sum from your combined debts by basically combining the total amount into one. A most common reason to use debt consolidation is to pay off several credit cards at the same time.
Different debt consolidation companies have a variety of consolidation solutions they offer to the clients. That is why if you are a potential client, you should do careful research into the company you are about to work with and also the payment plan and conditions they will offer you.
You can choose from:
- debt consolidation
- debt settlement
- debt management
- debt negotiation
- debt settlement
Debt consolidation and debt settlement
People are often confused by the terms debt consolidation and debt settlement. In reality, the two are quite different. The companies which offer debt settlement promise that they would act on your behalf in negotiations with your creditors so you could pay less than what you owe. But these types of companies are not renowned among the creditors, and even if they manage to negotiate a deal, debt settlement would hurt your credit score in the future.
Now that we have established what debt consolidation means, it should be noted that there are debt consolidation companies which offer debt consolidation loans. Taking out a debt consolidation loan won’t hurt your credit score as long as you are not missing or delaying your monthly payments. Debt consolidation companies usually insist on some form of insurance, a security measure which can be in the form of a mortgage, or any kind of collateral on your part which can be used to recover the outstanding debt in the event that you are not able to pay off your debt for any type of reason.
Different debt consolidation companies have a variety in the debt consolidation solutions they offer to their clients. That is why you should thoroughly research firstly into the company you are about to choose for consolidation, and the kind of consolidation plan you will be offered. You should also understand what each of them entails.
Why debt consolidation companies are attractive?
The most prominent reason why these consolidation companies are attractive to potential customers is that taking a debt consolidation loan would usually result in a drop of their overall interest rate. The loan itself would be with a fixed interest rate over the chosen tenure. It provides an easier way to deal with existing loans by reducing the total pay-off period and consequently, the interest as well.
There are of course certain downsides to this type of loan, such as the fact that the borrower would have to pay fees for the service. Since this type of loan is secured, if the borrower fails to repay on time, the lender will then have the legal right to seize the property which was used as collateral by the borrower. Still, the convenience of consolidation and the overall interest rate outweigh the perceived disadvantage.
There are debt consolidation companies that don’t really offer assistance with choosing the best method to find the right debt consolidation solution. They would refer their clients to a specialist who can answer all their questions and give them the best advice on which options they should choose.
Find a reputable company
The process of finding a good debt consolidation company can be tiresome, because when you are searching for one, you should really find a reputable company and this may take some time and research. It is always a safer bet to go with a company which has been in the business for some years, instead of a new one. When you’ve chosen your debt consolidation company, you should check out their general reputation by asking your friends and acquaintances for their personal feedback, or by looking at online reviews (though they cannot always be trusted, since they may be biased). You could also always check their BBB profile (Better Business Bureau) to see if the company is accredited.
After your research, you should have a meeting with a consultant at the company you’ve chosen who is going to explain to you the best course of action. It is very important that this person takes his time to get acquainted with your situation and is able to explain in detail the best course of action. It is really important that you understand fully the plan you are going to establish.
Nonetheless, debt consolidation loan terms are quite straightforward, and there is little to no room for any type of confusion. The most important thing is to determine what the monthly payment is going to be. The next thing is to choose the period of time which will be needed to completely pay off your loan. The amount of set-up fees and origination charges should be clear and transparent. Another important thing you should pay attention to is how much of the monthly payment is applied to the interest and how much to the principle.
Debt consolidation companies are offering a solution to the highly stressful situation of juggling several loans or credit cards. Debt consolidation gives you the ease of having to think about only one repayment amount every month and can help you lower the interest of your overall debt.