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Evaluating Debt Consolidation Loan Programs

If you are considering a debt consolidation loan, chances are you are ready start working toward a clean financial slate. Debt consolidation can help put financial burdens behind you, so you can move on toward your goals, whether they include saving for a new home, children’s college expenses, or a new vehicle. With that in mind, it’s especially important to spend some time evaluating debt consolidation loan programs before proceeding.

What is Debt Consolidation?

Debt consolidation involves getting a loan to restructure your debts. If you have more credit payments or other obligations than you can handle, consolidation is a way to borrow enough money to shift those debts around to make them easier to handle. Ideally, the monthly payment will be lower than making several payments to different creditors and you’ll have a lower average interest rate. These adjustments can make it possible to pay your bills off for less money overall and in a shorter amount of time. 

Evaluating Debt Consolidation Loan Programs

Before you choose a financial institution for a debt consolidation loan, it is important to do your research and evaluate debt consolidation loan programs.  There are many types, including traditional bank loans and credit card balance transfers. There is no one- size-fits-all approach to debt consolidation. Evaluating debt consolidation loan programs can help you make an informed decision in order to go with the best solution for your situation.

Debt Consolidation Loans

There are differences between companies that offer debt consolidation loan programs. Banks and similar financial institutions offer debt consolidation loans. When you apply for a debt consolidation loan, whether you qualify may depend on your credit history or the equity in your home. If your credit history meets the bank’s criteria, you may be able to get an unsecured loan to pay off your debts.

If you have had some difficulty paying bills on time, your best option may be a secured loan. A secured loan requires you to put up collateral such as property that will go to the lender if you are unable to pay the loan off as agreed. Home equity loans are an example of this. Borrowing against the equity in your home, can help pay off bills. However, if you fail to pay a home equity loan in full, the lender can foreclose on your house.  

Credit Card Balance Transfers

For individuals who owe debt on multiple credit cards, getting a lower interest card and transferring balances to the new card may work as a means of consolidating debt. Credit card companies often promote this type of debt consolidation with attractive introductory offers like zero percent interest for a defined period of time. 

However, that teaser rate will turn into a much higher rate when the cardholder is late making a payment, or if the transferred balance isn’t cleared before the introductory period closes.  Balance transfer fees, higher interest rates and late fees can create a worse situation for a borrower who has difficulty making timely payments.

Debt Settlement Programs

Debt settlement and debt consolidation are two different things.  A debt settlement agency charges a fee to negotiate a settlement with each of your creditors. You pay the debt settlement agency a specific amount of money each month that company will deposit into an account that is used to settle the amount you owe your creditors. 

A debt settlement program can help you avoid the hurdles of borrowing money to pay off creditors, especially when you have credit problems. You can also pay off your bills sooner because the creditors settle for less than you owe, but the debt settlement process can impact your credit score negatively.

The goal of consolidation should be to get you out of debt and on your way to financial security as quickly as reasonably possible. Upon evaluating debt consolidation loan programs and the associated products available to you, consider your options carefully. The right choice can make all the difference in the world. 

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