Updated January, 2012: Debt consolidation loans are essentially ways to reorganize your loans. Rather than pay off several loans, a debt consolidation will allow you to put all of your loans into one large loan — making it easier for you to manage your debts.
To understand the loans specific details, you’ll need to talk with a debt expert. Debt Consolidation Care is a debt community that will send you more information after you fill out the form below. Finish the form below, read the rest of this article, and you’ll be in good shape:
Debt consolidation loans are one of the more controversial arenas in the realm of financial planning. Some financial advisers hate debt consolidation, and other advisers love them.
In this article we’ll break down the pros-and-cons of such a loan, and consider whether or not it’s actually a good idea.
At the end of the article there are some links that can help you continue researching debt consolidation loans. But first, some definitions.
What is a Debt Consolidation Loan
A debt consolidation loan is a loan that you are given in order to “consolidate” your other loans. For example, let’s say you have 5 small loans. A debt consolidation loan is where you take one big loan and pay the small loans off — thereby consolidating them.
A debt consolidation does NOT reduce your debt directly. It consolidates your debt. I’m still a fan of the loans because I think it should be a given that re-organizing your financial situation makes it much easier to achieve your goals. As long as you don’t charge more debt on the credit cards or loans you just paid off with the new loan this can be a good idea.
If you’re going to get rid of items in your closet, you should probably reorganize and clean it first — same thing goes for debt and debt consolidation loans. Let’s talk about the disadvantages and then the advantages of getting a debt consolidation.
See the Think Money website to find out more about debt consolidation loans in the UK. If you live in the U.S. keep reading for more details and resources for consolidating your debt.
The Disadvantages of a Debt Consolidation Loan
Before we cover the advantages of a debt consolidation loan, let’s look at some of the disadvantages first:
- Isn’t Doing Anything. As I explained above, some financial gurus, like Dave Ramsey, are against debt consolidation loans because they think they achieve nothing except organization.
- It Takes Longer. Some debt consolidations are where you agree to pay less money, but over a longer period of time. This, of course, depends on the debt consolidation loan itself — each one can be different.
If you have any more concerns about a consolidation, feel free to list them in the comments for other readers. Any personal experiences or even professional advice would be appreciated.
The Advantages of a Debt Consolidation Loan
Now let’s check out some of the advantages of a debt consolidation loan.
- Lower Interest Rate. A debt consolidation can give you an overall lower interest rate. This means you’ll be paying “less” for your past loans, while still making it easier to pay the loans at all.
- Fixed Interest Rate. Getting a fixed interest rate is essential for a secure financial plan. A changing interest rate makes your future less predictable. You can “trade” your changing interest rates for a fixed interest rate.
- Easy Organization. Having 10 loans and debts to repay and keep up with can be hectic — leading to accidental mixed payments, or just unnecessary discomfort. Getting a debt consolidation loan ends all of this.
How to Get Out of Debt Automatically
The fundamental way to actually use a debt consolidation loan to get out of debt is to understand what it is and isn’t doing. It is making it possible for you to automatically get out of debt. Here’s how:
- Get a Debt Consolidation Loan.
- Get an Online Bank Account.
- Get an Automatic Savings Account.
You can automatically pay off the debt with a few clicks of your mouse. As I explain in the last “step” above, you can set your online savings account to put money aside automatically. You can also have that money automatically sent to someone else — like to pay off your debt.
By consolidating your debt, and making the payments automatic, you can pay your debts off automatically. Just set up the automatic payments, and pretend like your make just a little less money. You’ll be on your way to getting out of debt in a well-organized and efficient manner.
You can do this if you have a debt consolidation because you’ll only have to send money to one company rather than several — streamline your finances, and your finances will take care of themselves.
Debt Consolidation Loans in 2012
The key with loans for debt consolidation in 2012 is to do your homework. You must understand all of the pros and cons for each side for and against this technique. Just because a financial guru tells you they are right or wrong does not mean you should base your opinion just because they say so. Situations are unique, and you are responsible for your own decisions. Be empowered and be encouraged. After all – getting out of debt is always harder to do then getting into it – but it is possible.
Conclusion and Last Thoughts
Debt consolidation loans are thought by some to not make a huge change in one’s financial situation. I think that’s a bit wrong, because a consolidation allows one to be more organized and allows one to have a “big target” to hit, making the debt free journey easier.
A debt consolidation loan even allows you to set up your finances and banking to pay off your debt automatically — if that’s not a good financial decision, I don’t know what is.
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