You might want to go into the act of merging all your debts into one, as a lot of people have been inclined to do nowadays. Typically, companies, organizations, or private individuals that dabble in lending money at certain interest rates to pay off your other debts are very easy to find. You may know one or two friends that already turn to debt consolidation for help. So, before they can convince you to proceed with your own plans, here are some things you need to know about consolidation of debt.
You Only Have One Loan To Pay Off
Consolidation of debt means merging together all your current debt. Loans vary in amount and interest rates. Unsecured loans without collateral are one thing, while there are credit card debts that are incurred due to the purchase of goods via a credit line in a particular credit card company. Now, regardless of how much you owe the companies that provide you with their services, ther offers come with wide ranging interest rates per month and at various amounts that you need to pay per month. With only one loan to pay off, you might end up paying less every month as compared to the overall sum of multiple loans and debts you currently have.
Now, let us say you owe the bank a certain amount at 20% per month. Then you owe your credit card company about 5.1% interest per month every time you are unable to pay the whole amount. You also have two student loans at 15% and 17% interest rate per month respectively. Turning to debt consolidation help may provide you with a certain amount of money to cover all your loans and debts at a lower interest rate per month. It can be as low as 2% per month and a term of about 3 to 5 years. Even so, it is less than having to pay several dues at raging interest rates monthly, right?
The thing with debt consolidation help that several companies are offering is that due to the amount that you are borrowing from them, it will take you a bit longer to pay off the sum of the money you now owe. Since it is a sum of your loans combined, the sum may be a bit too overwhelming, so your only choice is to prolong the repayment period in order to reach a reasonable number.
You End Up Paying More Than You Owe
When you try to think about it, it all boils down to this. A bigger amount of money paired with a lower interest rate plus an extension of about 3 years more on the credit line actually equates to a bigger amount to pay off in total. This is the scenario that happened to everyone who requires debt consolidation help. It is not illegal but it may hurt you especially if your finances are not quite as healthy.
The bottom line is, debt consolidation may not be for you, or it might be. All you need to figure out is if you can make it work or not to your benefit.