These days, it seems like you can’t have a financial conversation without meandering into the debt topic. It’s a hot topic for sure, as it is something that plagues more and more people everyday, especially with the rise in credit card usage.
Often, when we hear or read about loan consolidation, whether on a tv commercial or in a magazine, we don’t necessarily know the context surrounding such consolidation. It might just sound like some far away idea you’ll not ever have to grapple with. But, as it turns out, with things such as student debt, house payments, and car payments you might find yourself having to run into the debt consolidation solution.
And this is why it is important to educate yourself on the basics of debt consolidation, what you can and cannot do, what you can expect, and how you can easily get started might your situation demand it.
So, to help with your debt elimination journey, here are 5 basic facts on debt consolidation you need to know about.
1. There are secured and there are unsecured loans
There are usually two basic types of loans: secured and unsecured loans. Secured loans simply means that once your loans are established you use an asset like a car or a home as collateral in case you happen to fail to pay your loans. Unsecured loans are higher risk and are based on your credit history more than anything else.
2. If you consolidate your debt it also means you’ll get a new lender
The way debt consolidation works is through a middle entity, of sorts. You contact a debt consolidator, they work out a plan with you, then they turn around and ‘negotiate’ with your original lenders for a new rate. This means the new entity you are doing business with to consolidate your debt might also be charging you fees and expenses for their consolidation services.
That is, unless you choose the non-profit debt consolidation route. It’s important to know that most efficient debt consolidation doesn’t come as a free perk and you have to make sure you calculate how much debt consolidation fees you’ll add up in the long run.
3. You can’t actively accumulate debt and be able to consolidate
This makes sense right? But not a lot of people know it. The point of consolidating debt is to get out of it. That way you don’t dig yourself into a deeper financial hole.
In order to be able to consolidate debt, you can’t be actively accumulating it at the same time. Not only does this make sense, but it’s also mandatory from debt consolidation entities. You must stop accumulating debt and close those accounts once the debt is paid.
4. You’ll only have one payment to make every month for all your debts
The great thing about debt consolidation is that you’ll only have to turn in one paycheck to take care of all the debt consolidated. This way you won’t be missing payments, or getting late fees on top of it. It makes your financial life so much easier and you can even automate payments with your bank account. This is yet another good reason to visit consolidate.loan and get on board.
5. It can help tremendously with rebuilding your credit
Besides the stressful mental burden of having debt accumulating every month, there is the toll it takes on your credit score as well. This is one of the other great things about debt consolidation, it helps you rebuild your credit score, which opens you up to new financial opportunities in the future.
Get Financially Educated
It’s always best to be as financially educated as possible. That way you won’t fall into financial traps or make mistakes that could have been avoided. These five facts are just the very basics about loan consolidation and there is always a lot more to learn on the subject and how the process can work for your benefit.
If you are serious about loan consolidation, it’s best to speak to an experienced financial advisor that will guide you through the process and answer any questions specific to your situation.
There are a lot more variables that go into successfully consolidating loans like having a student loan, etc. This is one of the many reasons why it’s always best to be well informed before making any major financial decisions.