As mentioned in the last post, many Americans are relying on credit cards for every day purchases, and in some situations choosing to make monthly payments on those cards and falling behind on mortgage payments, which can lead to foreclosure. However, for those financially struggling, a debt consolidation loan may be one way to finally start to pay down the large amounts of debt on all of those individual cards, and maybe even free up some extra money.
With a debt consolidation loan, all or some of a person's credit card debt is compiled into one loan. The consumer is then responsible for making monthly payments to just that one consolidated loan, instead of having to make individual payments to numerous credit companies. In addition, sometimes the interest on debt consolidation loans is lower, which means that overall the amount spent on monthly payments is also lower.
However, when it comes to obtaining a debt consolidation loan, it is not something a financial institution is obligated to give to a consumer, and rather a person has to apply and qualify under that specific institution's guidelines. Many financial institutions also want some kind of collateral for the loan.
Before a person decides to try and obtain a debt consolidation loan, it's a good idea for them to think about exactly what it is that he or she wants out of the loan. Where will the saved money go? Is it toward other debts, or will it be used just for extra spending cash? And, what will a person do to ensure payments are made on time? What will he or she did differently in terms of finances?
Depending on the answers to these questions, a debt consolidation may or may not be the best option for a person in debt. In some situations, a person's debt may also just be so high that filing for bankruptcy and wiping the slate clean may just be the best choice. This is why it's best for a person to look into all the financial tools and solutions that are available before making a decision on what to do with their debt.
Source: Daily News Pulse, "A Debt Consolidation Loan Is Worth The Research: Get A Second Chance," Charles Winget, 16 May 2011