The Pros and Cons of Debt Consolidation Loans

You are swimming in debt. You have 4 credit cards maxed out, a car loan, a consumer loan, and a house payment. Simply making the minimum payments is causing your distress and certainly not getting you out of debt. What should you do?

Some people feel that debt consolidation loans are the best option. A debt consolidation loans is one loan which pays off many other loans or lines of credit.

I'm sure you've seen the advertisements of smiling people who have chosen to take a consolidation loan. They seem to have had the weight of the world lifted off their shoulders. But are debt consolidation loans a good deal? Let's explore the pros and cons of this type of debt solution.

Pros

1. One payment versus many payments: The average citizen of the USA pays 11 different creditors every month. Making one single payment is much easier than figuring out who should get paid how much and when. This makes managing your finances much easier.

2. Reduced interest rates: Since the most common type of debt consolidation loan is the home equity loan, also called a second mortgage, the interest rates will be lower than most consumer debt interest rates. Your mortgage is a secured debt. This means that they have something they can take from you if you do not make your payment. Credit cards are unsecured loans. They have nothing except your word and your history. Since this is the case, unsecured loans typically have higher interest rates.

3. Lower monthly payments: Since the interest rate is lower and because you have one payment vs many, the amount you have to pay per month is typically decreased significantly.

4. Only one creditor: With a consolidated loan, you only have one creditor to deal with. If there are any problems or issues, you will only have to make one call instead of several. Once again, this simply makes controlling your finances much easier.

5. Tax Breaks: Interest paid to a credit card is money down the drain. Interest paid to a mortgage can be used as a tax write-off.

Sounds great, doesn't it? Before you run out and get a loan, let's look at the other side of the picture ? the cons.

Cons

1. Easy to get into further debt: With an easier load to bear and more money left over at the end of the month, it might be easy to start using your credit cards again or continuing spending habits that got you into such credit card debt in the first place.

2. Longer time to pay off: Most mortgages are the 10 to 30 year variety. This means that rather than spend a couple of years getting out of credit card debt, you will be spending the length of your mortgage getting out of debt.

3. Spend more over the long haul: Even though the interest rate is less, if you take the loan out over a 30 year period, you may end up spending more than you would have if you had kept each individual loan.

4. You can lose everything: Consolidation loans are secured loans. If you didn't pay an unsecured credit card loan, it would give you a bad rating but your home would still be secure. If you do not pay a secured loan, they will take away whatever secured the loan. In most cases, this is your home.

As you can see, consolidated loans are not for everyone. Before you make a decision, you must realistically look at the pros and cons to determine if this is the right decision for you.

Wesley Atkins is the owner of http://www.credit-cards-advisor.com/- which aims to get you fitted with the best credit cards to suit your situation. With numerous credit card articles and easy online credit card applications you will never choose the wrong credit card again.

Debt Consolidation: How it Works

As long as consumerism flourishes most of us will be tempted to overspend thus creating a financial bind. While some people do manage to get themselves out of debt others, for a number of reasons, including job loss, divorce or hospitalization cannot. In these instances bankruptcy may seem the only way out, but for homeowners there are other options. Debt consolidation is one such option.

How does debt consolidation work?

Homeowners may apply for home equity loans that can be used to pay down debts. Your credit union is the best place to turn if you are considering such a loan. Depending on the strength of your credit and other things such as the current value of your home your credit union will give you a lump sum that you can then use to repay your creditors. With most of your debts now paid you will make one payment, usually at significant monthly savings, to the credit union.

If you choose to use a home equity loan to repay your debts be sure that you are ready to make significant changes to your lifestyle, spending and saving habits. Your loan is secured by your home and you risk foreclosure if you default on your loan payments.

It is a good idea to make a budget and have a plan for how the loan will be repaid. If you run into trouble you must maintain contact with your lender so that you can make arrangements that are acceptable for all parties concerned.

Even if you are not a homeowner there are options Consider contacting a reputable debt help agency. These companies will contact all of your open accounts and negotiate a payment plan with lower interest or a lower balance. Once this happens, they will collect the payment from you and pay off that bill, and then move to the next one, doing the same thing with all of the open accounts. They accept the payments on the accounts, with their fees added onto the payment. When research debt help agencies be sure to choose a reputable agency and read the contract in its entirety. Many debt help agencies are unscrupulous and charge exorbitant fees that serve only to escalate your debt load. A good service can help lower monthly payments, lower interest rates, and can help in avoiding accounts being turned over to collection companies. How does this look on a credit report?

The consolidation plan will show up on your credit report, but most companies consider voluntary enrollment in a debt consolidation more favorably than non payment or bankruptcy. With time negative reports will have less impact on your score.

Before you sign on for a debt consolidation plan be sure that you can manage the payments. Take the time to review all expenses and sources of income before you commit to a monthly payment amount. If you do not follow through with the plan to repay your bills your creditors will not keep any reduced interest arrangements and will be less likely to work with you on any future arrangements. Additionally, the accounts will go back into collection, and the debt consolidation company may attempt to collect unpaid fees.

Nicole Soltau is the President and Founder of http://CreditUnionRate.com - The Leading Credit Union Directory Search, Find, Join.

Debt Consolidation Benefits

If you've ever been in a situation where you needed money that you didn't have, you probably already know about loans and credit cards. Here is a brief Explanation on What both are:

Loans

A loan is a type of financial aid which must be repaid, normally with interest. Interest rates depend on the type of loan, the length of the loan and other relating factors. Loans are normally paid back over a set period of time where the borrower will be responsible for paying back a certain amount of the total debt each month.

Credit Card

A credit card is a "card" whose holder has been given a revolving credit line by a financial institution. The card allows the holder to make purchases and/or cash advances up to a pre-arranged limit. The credit amount used during any given month can be settled in full by the end of a specified period or in part, with the balance taken as extended credit. Interest may be charged on the transaction amounts from the date of each transaction or only on the extended credit where the credit granted has not been settled in full. Popular Credit Cards in use today are: Visa, Mastercard, American Express and Discovery.

We're all quite familiar by now I'm sure with Credit Cards and Loans. What is Debt Consolidation though, how does it work? How can it help you?

Debt Consolidation

It's easy to become a borrower with Multiple loans, Most of which are unsecured - (not secured on the property). It can be hard to manage all of these loans individually to eliminate the debt which has grown as a result. Debt Consolidation is replacing these loans with a single loan secured on property. This can often reduce your (the borrowers) monthly outgoing interest payments by paying only one loan which is secured on the property sometimes over a longer term. Because the loan is secured, the interest rate will generally be considerably lower.

We live in a world today, where when we want something today, we want it today, and we don't want to wait for tomorrow. With this lifestyle it's easy for Credit Cards and Personal loans to amount, often in surprise. Managing these loans is a big problem for many people. Debt Consolidation is a good way to take all of these loans and put them into one, to make your repayment more manageable.

If you think Debt Consolidation is the answer to your financial problems or if you are just interested in more information visit: www.debt-area.com.

Ryan Fyfe

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This article is courtesy of http://www.debt-area.com - Debt Consolidation which features information and Articles on Debt Consolidation and related topics like Student Loan Consolidation and more.

What Is A Debt Consolidation Program?

Debt consolidation programs are devised to get you out of debt in the quickest and most inexpensive manner possible. When you sign up with a debt consolidation manager they will work with your creditors to combine all your debt and lower your monthly payments. It is a debt settlement arrangement that works by lowering your interest rates and forgiving your late fees thereby lowering your monthly payments.

When you are approved for a debt consolidation loan all of your debt will be combined into a single monthly sum. This payment is then split up and distributed between all of your creditors. You will pay one simple low interest rate on this amount as opposed to the several different high interest rates you were paying before. A debt consolidation loan is an excellent way to avoid extreme debt relief methods such as bankruptcy. You will need collateral when applying for a debt consolidation loan, how much will be determined by how much you need to borrow.

Banks and creditors look upon debt consolidation loans favorably because they realize you are taking positive methods to repay your debt. The majority of creditors are willing to work with debt consolidators in lowering your monthly payments or interest rates because they see this as an opportunity to have debts paid in full and in a timely manner. Debt consolidation loans are helpful aspects of improving your credit history. When you pay off your debt you will often earn more credit and higher credit ratings.

There are several different debt consolidation services on-line today. 7debt.com lists seven of the best agencies advertising on the net. ADNSgroup of the National Legal Debt Centers ranks as number one on their list. There is a $20,000 minimum debt required to apply. Achieve Financial Security ranks in at number two with a $10,000 minimum debt required to apply. USAconsolidate.com is number three, has no minimum debt required and gives you the option select consolidation or settlement. CareOneCredit ranks in at number four and has a $2,500 minimum debt. CuraDebt is number five and has a $10,000 minimum debt requirement.

FamilyCreditHelp ranks as number six, has no minimum debt requirement and specializes in helping you free up extra cash. Last but not least on the top seven lists is DebtAdvocatesOfAmerica with only a $5,000 minimum debt requirement.

Timothy Gorman is a successful Webmaster and publisher of Debt-Relief-Solutions.com. He provides more debt relief, credit repair and free debt consolidation information that you can research in your pajamas on his website.

Is A Debt Consolidation Loan Your Best Option?

For many people the lure of easy credit has taken them into the forbidden zone of debt. Between debt on regular credit cards, shopping store credit cards, home equity lines of credit, mortgages and car payments it's no wonder consumers are finding themselves financially and emotionally drained as they float in a sea of debt.

At a time like this with debt continuing to mount the decision to use a debt consolidation loan may seem like the smart thing to do - or is it? Certainly the top financial priority should be to pay off all outstanding debt. Unfortunately figuring out how to do this and which debt to pay off first can be difficult at best and even lead to more financially related stress.

This dilemma is common among consumers struggling to eliminate debt in order to regain their financial sanity. A debt consolidation loan can be an easy answer to solve the current financial strain brought on by a large outstanding debt amount but it may not solve the long term issue. The reason is because many consumers obtain a debt consolidation loan and correctly use it to pay off their debt. Unfortunatly suddenly feeling good about their new found financial strength they make the mistake of using their credit cards again and again and again - essentially repeating the blunders that got them into trouble in the first place. Compound that with the fact that they now also must pay off teh debt consolidation loan they orginally got in order to relieve them of their initial financial burdens. This is a classic example of where using a debt consolidation loan could lead to more harm then good.

A better option would be to pay off their credit cards one at a time starting with the card that currently has the biggest balance while paying the minimum amount neccessary to all other cards. Any extra money should be devoted to paying off the card with the highest balance first. Once that first credit card is paid off then move onto the card with the next highest balance. Repeat this process until all credit cards are fully paid off then put all but one in a drawer for safe keeping. Only keep the one card handy for emergency purposes. Now concentrate all money that was previous earmarked as credit card payments towards paying off other bills - perhaps a car or house payment. This option will only work so long as the original credit cards are not charged back up again.

If a consumer has financial strength then a debt consolidation loan can be beneficial for a number of reasons. First it eliminates trying to juggle numerous bills in various amounts all at once and instead allows a consumer to focus on paying one large bill. This saves time, energy and helps to prevent accidently forgetting to pay one of the many prvious bills which could lead to more financial charges and stress. The second reason is that a debt consolidation loan should lower the actual amount of money paid out each month. NOTE - it may lower the monthly amount but will most likely increase the oerall amount needed to finally pay off all of teh combined bills depending on the terms of the loan contract. Finally it can provide a psychological boost by relieving an individual of many small bills in order to concentrate on one larger bill.

Ultimately the choice as the whether a debt consolidation loan is the right answer lies with the consumer. Every situation is different and must be treated as such. No matter what option a consumer takes to eliminate debt if there is no financial resolve or strength then they will again fall into the debt trap.

Timothy Gorman provides more loan information and free loan quotes that you can research in your pajamas on his website: Military Loans Online.