Debt is perhaps the greatest epidemic of our time.
If you are experiencing a debt crisis, and have sought solutions for the crisis, you’ve likely come across the idea of debt consolidation:
An idea suitable for some, but harmful for others.
Whether it’s right for you depends, of course, on your circumstances.
Now…
Debt consolidation is when you take out a loan in order to pay off other, pre-existing debts.
These debts are combined – consolidated! – into one debt amount, which usually entails more attractive payment terms than those associated with the original debts.
These might include a lower interest rate and/or a lower monthly payment.
To initiate the process, you can apply for debt consolidation through your bank, credit union, or credit card company.
If your payment history is good, approval should come easy.
Otherwise, you may have to explore a consolidation option through private mortgage companies or private lenders.
Now, there are two types of debt consolidation loans:
Secured and unsecured loans:
Secured loans are backed by collateral from the borrower – such as one’s house or car.
Unsecured loans, on the other hand, do not require collateral, but have higher interest rates and are more difficult to obtain.
While consolidating your debt may seem like an attractive option, it is important to consider that debt consolidation will usually include a longer payment schedule.
You may obtain lower minimum payments, but you may also pay more in the long run due to higher interest rates.
In the end, debt consolidation offers a great opportunity to take control over your debts, but it is a process each person must be prepared to undertake at his or her own discretion.
If you would like to explore whether debt consolidation is the right option for you, we encourage you to get in touch with one of our agents by replying to this email :)
