The following is a guest post from Audric Stevens. Audric is an expert in the field of debt consolidation and is a part of Debt Consolidation Care.
There is no doubt in the fact that debt consolidation is one of the many options to shed your overwhelming financial obligations without having to file bankruptcy. One of the main reasons to opt for it is that it can lower your monthly debt repayment amount and provide you with the convenience of making a single monthly payment.
As you can see, there are many benefits of having your debts consolidated but then you should be careful about it, or else you may ruin your financial health further that may even force you to file bankruptcy.
Debt consolidation loan and increased interest payment.
One of the hidden problems of debt consolidation loans is increased interest amount over the term of its repayment. While it may reduce your monthly payments, however, those payments usually come with strings attached, i.e., extra interest payments.
This happens because of the reduced monthly payments that is stretched over a couple of years or so. Therefore, debt consolidation loan, in its most basic term, functions like a 7-year car loan instead of a 3-year one.
As a result, even if you are paying less, but then you’ll be paying a lot of extra interest on the loan. This will hold true, even if you are paying a reduced monthly payment amount due to lowered rate of interest.
In case you’re saddled with excessive credit card balances or other kinds of financial obligations, then you may do well by paying them off one by one. This particular debt repayment strategy will provide you with a huge amount of interest savings till the time you are left with no delinquent credit account.
However, if you choose otherwise to get your debts consolidated to make your credit accounts more manageable, then you may just make minimum monthly payments. In such a scenario, you’ll have to pay a lot of interest over the life of the consolidation loan.
To find out what’s feasible for you, keeping your financial needs and current income in mind, you may take advantage of an online debt calculator to determine the total cost of the loan consolidation process and the overall savings it’ll incur for you in interest that’ll help you to rethink your debt repayment strategy, if the situation demands so.
What to consider before using a debt consolidation loan.
Prior to taking out a debt consolidation loan, it is crucial to find out the new interest rate that’ll be applied on it. This includes all the additional costs as well as fees to originate and process the same.
Ideally, these costs should be lower as compared to the ones for whom you’ve opted to get them consolidated in the first place. So, if you are paying exorbitant interest rate, then you are aggravating your financial woes further.
Apart from that, you should be wary of illegal lending practices and various unscrupulous debt consolidation services that may be offered to you by a company only to earn a commission by suggesting you to refinance your loans.
|About the Author -- Audric Stevens
Audric Stevens is a financial expert and a contemporary writer. He is involved in various online activities through which he imparts financial lessons to people with diverse needs. In addition to that, he is closely working with the ‘debtconsolidationcare community’ at the moment that has several interesting and prudent financial tips for people to use. If you like this article please follow us here.