Is Your Future Bright?

Most people have taken out plenty of loans and other forms of credit, from various sources over the years. These could include student loans, credit cards, store cards, a bank overdraft, car loan, goods bought on a buy now pay later basis. All of these sources of credit will have different terms depending on who you borrowed from and how much. One important factor with all these loans is that they will all have different rates.

Rates and APR

The rate you repay your loans at is vitally important. Many people underestimate the influence the APR will have on how much they repay for a loan; the difference can be astounding. The bottom line is that you want your interest rates to be as low as possible.

If you have many different loans and they are all at different rates, and some of the rates are very high, you may consider debt consolidation. This is taking out a new loan that will provide you with enough cash to pay back all your other loans. Then the only loan you have to worry about is the new debt consolidation loan. The main advantage of this is that you may be able to borrow the consolidating loan at an interest rate substantially lower than what you’re paying for your other loans. This will mean that all your monthly payments will be replaced by one reduced payment, thus saving you thousands.

Lift Those Weights!

Another advantage of debt consolidation is the stress it can take off your shoulders. It is sometimes very difficult to keep track of all your various payments, when they’re due, how much they’ll be and whether or not you’ll have enough to cover them. This may lead to you frequently missing payments and incurring further late fees. A debt consolidation loan will remove all this hassle, as you will now only have one loan to repay.

Words of Caution

The main drawback of a debt consolidation loan is that the new loan is likely to be secured over your home. While your other loans will likely have been on an unsecured basis, you will be making them secured over your home. If there is a chance that you will not be able to meet the repayments, then you are putting your home at risk. This is highly inadvisable. Unsecured creditors can ultimately make you bankrupt and take your home but the process is lengthy and can often be avoided. If the loan is secured there is a much greater risk that your home will be taken to pay off the loan.

Debt Consolidation

Debt consolidation occurs where one takes out a loan in order to pay off two or more existing debts. Consolidating existing unstructured debt into one personal loan may save on your monthly outgoings while, at the same time, offering a repayment discipline and clear end-date to your debt.

An individual can join any debt consolidation program run by either a private or a non – profit organization. After meeting with a certified debt counselor one is in a position to decide which option is the best. The options available are debt consolidation whereby all the debts are lumped together and paid off with one single monthly payment negotiated by the debt relief agency. There is debt consolidation loans, debt management plan and as a last resort bankruptcy.

A Debt Consolidation service, or sometimes referred to as a "Debt Management Plan", has preset arrangements with almost all of the major creditors (mostly credit card companies, and some medical & collection companies) where the interest rate is roughly predetermined. On calling a debt consolidation company, they refer to creditor rate sheet and then give a new payment based on the lower interest rates they have with that respective creditor. Typically this payment is lower than what the credit card companies offer the public and more often than not will save you money monthly and simplify consumer payments if one has multiple creditors.

One caveat of the Debt Consolidation plan is that one must cancel any and all cards one includes in the program. An individual may wish to exclude a card for emergencies, depending upon the company's policies.

One benefit of the Debt Consolidation Program is if one is behind on payments and getting harassed by the creditors. On making the new monthly payment, this will stop the creditors from calling and keep them satisfied for the interim.

On extending the period over which one repays debt may mean that it will cost him more overall so make sure to read the terms and conditions carefully. One must also think carefully before taking out a secured loan, securing other debts against your home. Remember, your home may be repossessed if you do not keep up repayments on a mortgage or other loan secured on it.

The payments are usually setup to last 4-8 years and statistics have shown that there is significant fallout on debt consolidation programs due to unrest, situations changing, and poor customer service. Commissions to expect when shopping a debt consolidation company are roughly your first payment you'd make toward the program plus a monthly administration fee. The monthly admin fee ranges all over the board, depending upon the company you are getting a quote from. Some charge a flat fee while others charge a per creditor fee.

A Debt Consolidation Program significantly benefits those who have very high interest rates (above 18%), have more credit card bills then they can keep up with, or would just like the simplicity of one payment to one company for all of their unsecured debt.