What are Debt Consolidation Loans?

Debt consolidation loans — Smart way to overcome debt

Debt consolidation simply means that you streamline all your debts into one large debt. In this case you only need to repay only one large debt. This works like any other types of loans. This article includes the following:

  • How tax advantages and debt consolidation are associated?
  • In which way can debt consolidation loans be more useful?
  • Is length of term is a factor that has to be analyzed before going for debt consolidation loans?

You may have heard of debt consolidation loans. In fact, these types of loans are widely advertised as an ideal, smart way to get out of debt. If you have ever considered a debt consolidation loan, though, you need to consider carefully. You need to be sure that you understand what this type of loan is and how you can use it effectively to improve your financial life. If you are in the UK you can find more debt consolidation information on the Think Money website.

What is debt consolidation?

Debt consolidation simply means that you streamline all your debts into one large debt. You do not have to repay less money, but you only need to repay one large debt. Debt consolidation works like many other types of loans at first – you apply for an get a loan that is large enough to cover your debts. You then use the money to pay all your creditors. You are left with one large bill to repay, often at very reasonable interest rates.

Who offers debt consolidation loans?

What are Debt Consolidation LoansFinding a debt consolidation services and loans is not challenging. There are many types companies who would be happy to help you find the right loan for you:

  1. Online companies
    New online debt consolidation services and companies are starting up all the time, so there is a good selection of these companies to choose from. Online debt consolidation loans offer the advantage of easy comparison and privacy. With these services, you can easily shop for the best loan online and apply for the loan in the privacy of your own home – and on your own time.
  2. Banks and financial institutions
    Many banks, credit unions, and other financial institutions offer debt help services and consolidation loans.
  3. Specialized companies
    Some companies offer only consolidation loans as part of their services. If you decide to sign up with a debt consolidation company, you have the advantage of knowing that you will be dealing with people who specialize in this type of loan. However, do look for a company that offers a range of consolidation loans and consolidation services. This will help ensure that you will get the loan that’s right for you.
  4. Debt help companies
    Some companies helping customers with debt have a wide range of financial services and debt syndication solutions available. Many of these companies offer loans as well to help you consolidate your debt.

What to look for in a debt consolidation loan

Whichever lender you decide to trust with your loan, you need to make sure that you select a good loan. In general, experts suggest that customers look for loans that offer:

  1. Low interest
    If your debt load has already affected your credit rating, you may have a hard time getting a great interest rate. Nevertheless, it is crucial that you do everything you can to find the best rate possible. Since these types of loans tend to be large and have longer terms, even small changes in interest rates could end up costing – or saving – you thousands of dollars.
  2. Tax advantages
    Some loans – notably home equity loans – have tax advantages. Since with such a loan you will be paying less in taxes each year, these loans may make more sense financially for you.
  3. Reasonable monthly plans
    There is simply no point in taking on another loan if you cannot repay it. Make sure that the monthly rate for the loan is fixed (will never go up) and make sure that you can afford that monthly amount no matter what.
  4. Length of term
    You will need to decide how long you will want to take to repay your loan. If you select a longer term, you will enjoy much lower monthly payments. If you are on a very modest income, this may be your best solution, even though it will cost you more in interest over the long term. If you can, you may wish to consider a shorter-term loan. However, you need to make sure that you can make the monthly payments.
  5. Penalties
    Before you sign up for any loan, it is crucial that you understand what penalties exist if you are late with payments. Keep in mind that penalties on loans designed for people with high debt tend to be stricter because the debtors who take these loans tend to be greater risks. If you cannot live with the penalties of a loan, do not sign for it.
  6. Discounts
    Some lenders offer debt consolidating loans which offer special discounts for seniors. Some lenders will also offer you a discount or better rates if you agree to have your monthly payments automatically deducted from your account.