Almost everyone lives with one type of loan or another. For some it’s as simple as having a home or car loan, whereas others will build up a mountain of debt with credit cards and other types of loans. What often happens in these types of situation is that people reach a point where the monthly amounts they have to pay end up outstripping their income. That usually leads to a situation where payments get skipped and credit cards are used to pay off other debts, accumulating even more debt in the process. It’s a downward spiral that can quickly go out of control, which is often why a debt consolidation loan is required.
While some folks simply think about declaring bankruptcy, others go the debt consolidation route in an effort to pay off all that they owe. This usually involves contacting a financial institution that offers the service and then rolling all of your credit card and loan debts into a single account. This is an appealing option for many for a number of different reasons. The number one reason is because the interest rates are usually a whole lot lower than those of credit cards, not to mention the fact that you only need to make a single payment each month.
That said, debt consolidation is not necessarily something that makes sense for everyone. You really have to take a look at your finances and try to figure out how long it will take you to pay back what you owe without consolidation. You also need to try and figure out how much it will cost you to pay back those amounts during that period of time. What you might discover is that it is actually cheaper for you to stick with multiple payments as opposed to dumping them all into a debt consolidation loan.
A good number of people that opt for debt consolidation loans don’t take the time to do the math, with even fewer actually contacting their lenders to see if they can negotiate a lower interest rate. If you have done both of those things and still find that you are in something of a hopeless financial situation, you should then consider taking to your bank or financial institution about the possibility of a debt consolidation loan. It’s also a good idea if all of your debt is with companies that have incredibly high interest rates. The majority of the money you pay every month will actually go towards interest, with a tiny amount hitting the actual balance owed.
If you do decide to go with a debt consolidation loan, you also need to take a very serious look at your behavior. The reality is that the debt situation you are currently in was created by you and you alone. Putting all of your debt into a single payment is not a cue to start adding new credit cards and starting the problem all over again.