The term “debt consolidation loan” refers to acredit consolidatorloan a type of loan that you can avail yourself of in the event that you wish to consolidate all of your debt obligations into one loan.The money from the new loan can be utilized to pay off the existing debt.Your new loan for debt consolidation will come with a different term and interest rate, which are the terms agreed to by you and your lender.In general, obtaining an agreement to consolidate all loans together will allow you to reduce your monthly installments.
As practical as it sounds, many people have had lots of misconceptions about debt consolidation.To give you more understanding of the subject, we’ve reviewed and dispelled five myths regarding credit consolidation for debt.
Myth 1: The cost of debt consolidation loans is an arm and a leg
A lot of people have thoughts about whether or not they ought toborrow money to pay off debt.The price that a lender charges you is largely dependent on the amount of interest you must pay for it.Like all loans, the rate of interest charged on the loan will be largely contingent on the lender you choose to work with.However, it is possible that debt consolidation loans will cost less than credit cards.
Many lenders would provide you with a loan for debt consolidation without charge.However, there are those who will charge an initial loan fee to cover the cost of processing your loan application.APRstypically contain this origination charge and if you evaluate the loans prior to making a decision, you will be able to select the most appropriate option.
LoanTube is your one-stop shop to compare loans from a variety of lenders that are based onthe Real Interest Rates.All you have to do is fill out a complete application so you can select the best loan deal.
Myth 2: Consolidating debt impacts your credit score
The majority of loans require an extensive credit screening prior to releasing the cash to the person who is borrowing the money.For credit consolidation, the tests are usually more stringent and thorough’ than other loans.This could affect your credit score, but maybe just some points.
While it is true that consolidating your debt could actually boost your credit score.However, only if you handle the repayments and debt promptly.This is because timely payments make up a large part of the overall credit score.
A small blemish to your credit score could be worth it if you’re in a position to stay on top of your payments as well as manage debt better.
Myth 3: The debt consolidation loan will reduce the amount of your debt repayment
The debt consolidation loans can aid you topay off your current obligationsin order to be obligated to one loan.But, contrary to popular belief it does not make it easier or less costly to pay the loan payments.It simply consolidates the debts of your creditors into one debt, easing your managing your debt.What you must do is make payments against the amount on a monthly basis (or in the manner agreed between both you and your lender) till the loan is paid off.
It is distinct from debt settlement, in which you engage a firm that deals with debt to represent you, and request that your lenders reduce the amount you owe them. The process of settling debts can be risky because it could have a huge impact on the value of your credit score.
Myth4: You’re bound to save money on interest
A good credit score and solid credit history could get you an arrangement that the interest rate for the debt consolidation loan is lower than the rest of your other loans. If you decide to extend your repayment period and you end up paying more, you could be paying more for the loan.
To illustrate this with one example: take PS20,000 of credit card debt, with 15% APR with monthly installments of PS600 This means that the total amount of payments will be around PS25,800 and it will take you three and three and a half years to pay off the debt.
If you consolidate your personal loan with a seven-year period of repayment at 10 percent APR, your new monthly payment will be PS332 However, the total amount you pay increases to PS27,890.
Thus, the amount you save or pay is dependent upon the credit score, the interest rate, and repayment time.
Myth 5: Debt consolidation pushes you towards more debt
This is among the most popular myths about credit consolidation. Being in debt is contingent on how carefully you use your money. When you’ve got a sound and robust budgeting process that is in place, you’ll be more prudent when it comes to spending. Debt relief programs can help to simplify and untangle your debt obligations. However, if you don’t focus to improve how you budget, you might find yourself in debt again.
The purpose of debt consolidation is toaid in the repayment processto keep you from falling behind in your payments.It doesn’t play an impact on encouraging you to pay off greater debt.
This is the time you should look into consolidating debt
- You’re not utilizing all your savings when you pay fees and charges.
- You’re confident that you will repay the loan in the full amount
- It is important to improve your habits of spending and keep in checkexcessive direct debits
- It is not a good idea to keep taking out loans.It’s a sign of a debt issue and, in that situation, speaking to a debt counseling service is the first step.
If you’re struggling to resist the temptations of making use of the credit account, then it might be best to seek professional advice on debt.Removing your credit card’s service could be a smart idea in this case.
After having learnedabout the debt consolidation loansIf you decide to take one out it is recommended that you research a small.Examine the various loans carefully to determine the most suitable option.For you to find an offer that is Real APRs, that’s exactly the interest you’ll pay to your lender.