Unsecured Debt Consolidation Loans
If the terms and conditions of an unsecured debt consolidation loan are good, it can vastly help a client pay off their debt faster and save them thousands of dollars. But, these days clients are just as likely to get a bad deal on a debt consolidation loan as favorable one.
An unsecured debt consolidation loan means the client wants to borrow money to pay off all their creditors, and will now owe the same amount to a single financial institution, such as a bank or credit union. By getting a lower interest rate, a new payment schedule, and a lower monthly payment, the client is hoping to get out of debt sooner with less interest paid overall.
Unfortunately, this isn’t always the way it turns out. There are many dangers involved in the process to avoid, and remaining ignorant will often ensure you fall further behind rather than coming out ahead.
Promotional Rates on an Unsecured Debt Consolidation Loan
If you manage to secure a lower interest rate with the loan, check to see if it is a promotional rate. Many banks and credit unions will try to entice customers by offering a debt consolidation loan with an initially low interest rate, which ceases after six or nine months.
The interest rate will then jump up for the rest of the time you’re in debt. Often, the new rate will be abnormally high, because it is designed to recoup the cost of the promotional rate. Therefore, be sure to read the fine print of the agreement very carefully.
Trading a Small Problem for a Bigger One
Having a high debt and low credit are poor conditions for obtaining an unsecured debt consolidation loan. Lenders are likely to offer high interest rates or fees to offset the risk of consolidating your debt, especially in a situation where no collateral is in place should the borrower default on the loan.
An unsecured debt consolidation loan does you no good if it doesn’t lower the interest and fees considerably. Read through the agreement, making sure to seek a second opinion if you find it confusing. Be sure you can establish a budget that will allow you to make the new payment consistently and on time each month. Take the time to compare all of fees and interest rates of your credit cards before agreeing to an unsecured debt consolidation loan.