Debt consolidation, it is a type of loan taken to repay all the unsettled dues. Time and again it is taken at lesser interest rates. Many consider this debt consolidation in a situation when having multiple loans and facing the troubles with higher interest rates and they feel it worth do so. Though debt consolidation can help you in such situations to save your money but there are risks associated with it.
Benefits of debt consolidation: If you have taken multiple loans and trouble in paying off the interest rates, then this is the program can help you to lessen your interest rates and how to cut down monthly instalments. Some of the benefits are,
- Interest rate saving- The main benefit is that it can reduce the interest rate that you are paying, by negotiating with your creditors. For this you can discuss the issue with the some of the debt consolidation companies, their main duty is to talk on your side.
- Debt settlement plan-Debt settlement plan, you will get the plan from the creditors or you’re your collection gathering agents. Here in the plan you get chance to pay bills with reduced interest rates at which you can afford and par easily.
- Single once-a-month payment- Creditors will help you to make a single monthly plan. If that is approved by your creditors then you have to pay that agreed amount to the consolidation company every month and these consolidation company will give out the money to your creditors. The objective here is to reduce your burden and you need pay to debts to multiple creditors.
- Get liberate from collection calls- After you have signed an agreement with the consolidation company, your creditors are forbidden from communicating or getting in touch with you.
- Improves your credit rating- having bad payment history will have poor credit score, so by approaching debt consolidation you pay off your unsettled dues so by this it improves your credit score.
- Debts counselling for free- many of the debt consolidation companies offer free service to consolidate unpaid bills and debts.
Debt consolidation risks: Refinancing or debt consolidating is a process by paying less in actual amount and also interest rates. The risks associated with are,
- It will be a short term loan if you are not able to new loan requirements
- Though the interest rate is reduced the actual amount you pay is will be more as you are paying for longer period.
- There will be extra chargers and hidden fees for modifications
- Some companies dealing with debts consolidating will charge more interest rates than banks sometimes. For this you can talk to your consolidation company in advance to charges and fees for their services.
Always it is wise to ask enquire about PPI claims before obtaining loans. As these loans will help you in misfortune situations like Job lose, sick, or for any other reasons you cannot repay the loan.
About the Author:
Maria is professional blogger and shows keen interest in finance. You can reach her @financeport