Perhaps you are considering a debt consolidation loan. Debt consolidation involves taking out one loan to pay off one or more other loans. The right way to do this is to use the money from the consolidation loan to pay off several other high-interest debts.Debt consolidation loans work this way: you borrow a sum of money from a financial institution (a bank or credit union, for example), and you use that loan to pay off all your outstanding loans. The consolidation loan has a lower interest rate than the high-interest loans that you're paying off. That should make your payments smaller. On top of that, the length of the loan is usually longer than the repayment schedule for your original debts, thus lowering your monthly payment.
Getting a debt consolidation loan is not free. And very often the person who needs the loan is in the worst position to get the very loan he needs. Possibly the debtor who has overwhelming debt has likely missed a payment or two, and his credit score has taken a hit. And getting a new loan can be very difficult and expensive.
But if you are careful with your financial planning, and get some good advice (such as from a reputable credit counselor or other financial advisor), you can use a consolidation loan to help preserve a good credit history.
Some debtors are tempted by offers of low-interest credit cards, thinking they can save money on interest that way. Trouble is that these low interest-rate offers only last a short period of time, and then they go to higher rates, and the savings is lost. This is probably one of the worst ways to handle your debt troubles. Make sure to avoid additional debt, especially credit card debt.
Debt consolidation can be a very good choice or a very bad choice. The difference is in your attitude toward taking on new debt. Avoid it at all costs!
Getting a debt consolidation loan is not free. And very often the person who needs the loan is in the worst position to get the very loan he needs. Possibly the debtor who has overwhelming debt has likely missed a payment or two, and his credit score has taken a hit. And getting a new loan can be very difficult and expensive.
But if you are careful with your financial planning, and get some good advice (such as from a reputable credit counselor or other financial advisor), you can use a consolidation loan to help preserve a good credit history.
Some debtors are tempted by offers of low-interest credit cards, thinking they can save money on interest that way. Trouble is that these low interest-rate offers only last a short period of time, and then they go to higher rates, and the savings is lost. This is probably one of the worst ways to handle your debt troubles. Make sure to avoid additional debt, especially credit card debt.
Debt consolidation can be a very good choice or a very bad choice. The difference is in your attitude toward taking on new debt. Avoid it at all costs!
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