Debt Consolidation Loan

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Debt Consolidation Loan

Ask your friends about getting a debt consolidation loan and the first thing they'll probably say is, "Why would you get a debt consolidation loan? That's just replacing one set of debts with another." On the surface that's what it is. These so called "friends" of yours probably never needed any kind of debt help, so they really don't know what they're talking about. However, we do. And we're going to talk all about debt consolidation loans.

The Benefits of a Debt Consolidation Loan

What your friends don't know is that when you have a lot of unsecured debt (like credit card debt, medical bills and non-government student loans) you're probably paying an outrageously high interest rate (this is particularly true of credit card debt). But if you get a debt consolidation loan, the interest rate is usually around half of what you're paying on everything else (or less--some lenders shoot for rates in the single digits). Because of that, you could have those debt consolidation loans paid off in about five years. Without the loan, if you just continue to pay the required monthly minimum on your unsecured debts, it could take you 18 years or more to pay it all off, and you will have ended up paying a lot more.

Other Options

The bad thing about a debt consolidation loan is that you usually have to have some sort of collateral. If you don't, you probably can't get the loan. But help is available in other forms. Check out these debt consolidation solutions:

Debt Consolidation - Involves negotiation to get your unsecured debt balances and interest rates lowered. Then the new, lower balances are combined and you make one monthly payment to the debt consolidation company, which they distribute among your creditors. Because of the reductions, you can become debt free in about five years.

Student Loan Debt Consolidation - This is good if your only debt is student loan debt. It combines all of your outstanding student loans into one and locks in a much lower, fixed interest rate for you. Your monthly student loan payments are cut in half, too, because you are given more time to pay them off.

Debt Consolidation Mortgage - Allows you to borrow from the equity in your house to pay off your unsecured debts. Your payment is combined with your mortgage, and you get the same interest rate as your mortgage. In some cases, the interest is even tax-deductible (check with your tax advisor to see if this will work for your tax situation). Beware though--if you miss a payment you could lose your house.

If any of these debt consolidation tools or debt consolidation services interest you, check out our Related Resources to find a company that provides these services.