For any number of reasons, people may rack up debts from a variety of sources, such as credit-card debt, car loans and student loans, that they are having trouble repaying . These loans may have high interest rates, high monthly payments or be hard to manage, causing people to seek a simpler, cheaper way to repay the money they owe. One option is to consider a debt-consolidation loan.
Lower Payments
Consolidating debt may allow you to make lower monthly payments than you currently pay, if your consolidation loan is spread out over a longer repayment period. For example, if you have multiple short-term personal loans or auto loans and you consolidate them into a loan that has a 15- or 30-year repayment period, the monthly payments would be lower. However, you would pay more interest over the life of the loan.
Lower Interest Rates
A debt consolidation loan may offer you a lower interest rate than you are currently paying on your outstanding debt. For example, credit cards are notorious for the high interest rates that they charge because they are unsecured loans. If you use a secured loan, such as a home-equity loan, to consolidate your debt, you will save money on the interest payments each month. According to MSN Money, even personal loans from credit unions or banks that have interest rates more than 10 percent may save you money if your credit cards are charging you more than 20 percent.
Simplicity
When you have debt from a variety of different sources, it can be difficult to make sure that you are making all of your monthly payments on time. If you make a late payment, your interest rates can go even higher in addition to being charged late fees and other finance charges. By consolidating your debt, you can have one monthly payment to worry about rather than balance multiply payments with different due dates.
Types
Debt consolidation can take a variety of forms. One of the most common is a home-equity loan. With a home-equity loan, you are borrowing against the value of your home, so you will be able to get a lower interest rate and make only one payment each month. You may also be able to do a cash-out refinance, where you refinance your mortgage for more than you currently owe and you use the extra money to pay off other debts. However, you should be careful because if you fail to repay a home-equity loan or a cash-out refinance, you could lose your home.
Warning
Because of the allure of a magical debt consolidation loan that people expect to save them money and reduce the amount they owe, the debt-consolidation industry is ripe with scams and companies looking to make an easy dollar at your expense. MSN Money warns to beware of debt-consolidation companies that promise to take care of everything, so you have to only make one payment. Those companies often tack on an additional fee to your payments for themselves, and, if they fail to pay your creditors with the monthly payments you make to them, you are still on the line for those loans.
0 comments:
Post a Comment