If you have $15,000 of high interest debts, then you have probably considered taking out a debt consolidation loan to help your situation. Since consolidation is designed to help reduce interest rates for easier payments, it might seem that the loan is a useful solution to high minimum payments. The problem is that the theory does not always match up with the reality of the new loan.
Unsecured Consolidation Loan Basics:
When you are looking into taking out an unsecured consolidation loan for $15,000 to pay off credit cards and other high interest debts, you will need to consider a few key basics. Without understanding the loan, it is easy to end up facing bigger problems within a few months of obtaining the funds.
As an unsecured loan, you will not need to provide any collateral against the loan. This is useful when you do not have any property, but it does have the downside of increasing the interest rate due to the higher risk associated with the loan. This means that you should expect a higher interest rate than a loan that is secured with a piece of property like a home equity loan.
While the lack of collateral can make it seem like an easy loan to obtain, you should keep in mind that it does require a credit check. If you have a low credit rating, you are not likely to get approved for the funds. Even with a high credit score, it is not always easy to get the interest rate you want.
Beyond the complication of interest charges and qualification standards, you will also need to consider the basics of how the loan works. A consolidation loan is not like negotiation services. The loan does not require closing any other accounts or putting it on hold. Instead, it allows revolving accounts to remain open so that you are still able to use it.
The loan method means taking out a loan for $15,000 and then using the funds to pay back the other debts. The ideal situation is that your interest charges are dramatically reduced so that you pay less each month and are able to keep up with your payments.
Problems with Debt Consolidation Loans:
Consolidation loans do not come without any problems. In fact, is has a few key problems that often make it better to seek other debt relief services since it is not helpful to most individuals or families.
A key problem with unsecured consolidation loans is the ability to qualify for a reasonable interest rate. The goal of consolidating is bringing down the amount you pay. With a loan, this is accomplished with a lower average interest rate.
The problem is that if you have a FICO score that falls below 700, you are not likely to qualify for a low interest rate. An unsecured loan already has a high interest when compared to secured options. Furthermore, a credit score that is not classified as excellent or great will not result in a reasonable interest rate. You might end up with interest that is actually higher than the initial debts.
The interest rate is not your only consideration. The risk of ending up in higher debt is another potential risk factor when taking out a consolidation loan. The loan will not require closing your credit cards, so you can still spend on the cards after paying it off. This means that you might end up building up more debt accidentally as a result of not getting help with budgeting or improving finances.
Debt Relief Services:
Working on reducing your debt with a debt relief company can provide you with a better situation. Not only are you able to reduce the amount you need to pay each month, but it is possible to pay off your debt completely within 24 to 48 months.
A debt relief service will negotiate with current creditors rather than providing a loan. As a result, your current credit cards and other high interest debts are frozen and you will not have access to the funds. You will end up paying less each month and with negotiation services, it is possible to settle the debt for less of the current principal balance.
Debt relief services might have a short term impact on credit ratings, but it is possible to immediately start rebuilding the credit scores. It is only a temporary impact, and it will not carry forward like bankruptcy. This means that you do not need to worry about being refused a job a few years later because of the credit report.
Debt relief services take the situation a step further as well. You will learn more about budgeting and getting your financial situation under control.
You do not need to take out a new debt to pay off your current loans. If you want to learn more about debt relief services, call us or fill out the form on DebtConsolidationUSA.com. You will receive a free debt analysis.