Financial emergencies can strike at any moment and can cause the person to be trapped in deep debt. Varying economic conditions can bring about unpredictable situations that can have you stranded with debts. Under such circumstances, it would certainly be a great relief to clear all your debts instantly. This is probably the reason why debt consolidation loans are popular amongst many people today. What are these debt consolidation loans? The concept behind these loans is quite simple. Debt consolidation loans are used to clear all your outstanding bills in a single installment. This simplifies things because you will be cleared of all the outstanding debts and will be required to make only one payment towards your debt consolidation loan creditor. For instance, let us assume that you have five bills with interest rates varying from 12% to 20%. Upon choosing a debt consolidation loan, all your bills would be cleared and new rate of interest would be approximately 14%. Now, you have only one single payment to make and can save a substantial amount on the interest.
Debt consolidation loan and credit scores
Are you now wondering whether debt consolidation loans affect your credit score? Ideally, you can see no negative impacts of these loans on your credit score. Nevertheless, your credit score has significance on the loan application since it will be thoroughly verified to determine your eligibility. This kind of hard enquiry might have minor negative impact on your credit history. Not all is lost, however. These loans help you to clear outstanding bills in a timely manner and in turn assist you in improving the credit score.
Is debt consolidation right for your situation?
The purpose for opting debt consolidation loans may vary. Nevertheless, it is important to understand that these loans are the only means to handle your entire debts single handedly. It is therefore necessary to assess your financial situation and opt for these loans if they can truly assist you in achieving your goals. Many people are under the assumption that all debt consolidation programs are the same. Nothing can be farther from truth. While the general idea remains the same, each program offers different options to the individual depending on his/her requirements. It is therefore essential to identify the cause for choosing these loans and discuss the same with your creditor.
Debt consolidation loans do not mandate collateral either. Nevertheless, you can expect more benefits like reduced interest rates upon availing a secured debt consolidation loan. More often, a creditor does not offer varying methods for debt repayment. This is because there are standardized regulations regarding creditor benefits and it can be hard to find a creditor offering better options. Nevertheless, creditors always aim to provide payment plans that can be afforded by their customers. Debt consolidation loans provide mental relief by providing a secure platform for clearing outstanding debts. The loans are given out only after scrutinizing your application for repayment capacity. Thereby, the debtors are not pressurized by creditors for loan repayment since they are confident about the repayment capacities of their client.