Debt Consolidation Loans

Debt Consolidation loans are simply a form of debt management strategy. It is an option for individuals who have fallen behind on their payments and have accrued a huge amount of bad debts. With debt consolidation loans, all of your debts are “consolidated” into a single account, so that you will only have to make one payment every month to a new creditor.
Basically, you will have to hire a debt consolidation company, and take out a new loan from them. The new loan will be used to pay off your existing ones, and so you now owe the debt consolidation company and will have to make the monthly repayments to them. Usually, the terms will be different, and the loan duration extended so that the monthly repayments are reduced. As expected though, the new loan will also be bigger because of the debt consolidation fees, and you will have to pay more all in all to lengthen the loan’s term.
If you have bad credit, chances are you have too many debts that are a pain to handle, and the more that time passes by, the more your debt grows and become more unaffordable. The idea with a debt consolidation loan is that it makes everything easier to manage. You won’t have to deal with multiple creditors anymore, pay on different due dates, or decide on which debt to pay first. When your debt is consolidated, you will only have to make one fixed monthly repayment, to one creditor, at an amount that you can afford.
Still, a debt consolidation loan is not without its pros and cons.
Debt Consolidation Loan Advantages

  • Debts are easier to manage because you will only have to make one monthly payment to one creditor.
  • Reduced monthly payment to an amount that you can afford.
  • Can help avoid consistent late payments and further credit score damage.
  • Can help prevent bankruptcy.

Debt Consolidation Loan Disadvantages

  • There’s extra cost for taking out a new loan.
  • You’ll be tied to a new debt that much longer.
  • You’ll have to pay more over the long haul.