Debt Ratio Article

Debt Consolidation Loan- How to Spot A Good Deal

Debt consolidation loans are becoming widely known as the best way to get yourself out a bad financial situation, and possibly save your credit in the process. While that is true, you need to be really careful when going this route, because it is easy to look at the numbers and assume that you are getting a better deal, when in actuality, it may not be such a good deal when you factor in the term and interest on the loan. The first step in debt consolidation is to crunch the numbers on your existing debt, know how much you owe, how much interest you pay, how much that debt will cost you five years from now, and how much money you pay out each month in minimum payments.

When you do a debt consolidation loan, you are borrowing enough money to payoff as many debts as possible, typically credit cards, medical bills, car loans, student loans, everything but your mortgage basically. You combine all of those payments into one, meaning that you only have to worry about one payment and one due date, rather than several. In some instances, you may be able to get a lower monthly payment, which can provide relief from a strained and stressful financial situation when you are severely over-extended. If you can also gain a lower interest rate, you can really come out on top in these deals, if you are careful. There are many benefits to be gained from a good debt consolidation loan, but you have to make certain you know what you are getting into from the start.

Your lender is not going to tell you that you may not be getting a good deal, as they want your business, so that responsibility lies completely on your shoulders. If you have already had some accounts reported negatively to the credit bureau, you should know that you may not be able to get the interest rate that you are looking for, especially if you don’t have any collateral that you can list. If this is the case, the only way you will really be able to secure a lower monthly payment is if you extend the length of the loan, which will end up costing you a lot of money in accrued interest, which could potentially cost you even more money in the end. You could quite easily pay more than twice what your original debt amount was, by the end of the term of the loan.

So, while debt consolidation loans can be a great thing, you have to know what you are doing, and be able to look at the big picture. Remember that lower monthly payments are not always a good thing if it means that you will be paying on that debt for years and years to come. You will need to be able to run the numbers and see how much the loan will really cost you when compared with your current debt. If you can’t do this on your own, take along a trusted friend or family member for help; don’t rely on the banker to do this for you!