If you’re drowning in debt or even if you have quite a bit of debt to deal with, you’re likely feeling the pressure and stress to pay it all off. And sometimes you might want an easy way out by getting a consolidation loan. Or you may even have considered getting a payday loan. But do you need a get out of debt loan? It may not make sense, after all, to borrow money to pay off your existing debts. But, for others, a debt consolidation loan just might be the very thing you need to help wipe out debt.
First things first, in order to qualify for a debt consolidation loan, you generally need to have at least $7,500 in debt. So if you’re not quite at that point, try getting out of debt yourself first or creating a get out of debt budget.
Now, let’s consider what a debt consolidation loan is and we’ll also take a look at the pros and cons.
How A Debt Consolidation Loan Works
Instead of paying your debts individually, you’ll go to a debt consolidation company The debt consolidation company will turn to your lenders and negotiate a deal to pay off all your loans for you. Usually they’ll get a deal for between 25% to 75% off.
They’ll pay off the loan, then you’ll owe them money instead of your previous lenders.
Instead of having to make four payments, you only need to make one. Your monthly payment is usually significantly lower than your previous monthly loan payment amount.
So that seems pretty simple, right?
Just keep in mind that the debt consolidation company also needs to make money. And sometimes you just might end up paying more with your consolidated loan than you would if you were paying off your debts individually. Your monthly payment may be less, but in terms of the total loan term you may end up paying a few thousand dollars more.
Pros and Cons of a Get out of Debt Loan
- Pooling all of your debts into one payment makes it easier to keep track of.
- Often times, your interest rates will be lower. This is usually true in the case of credit card debts.
- By using a debt consolidation company, you no longer have direct contact with your lenders.
- Just because you’ve consolidated your debt, does not mean that your existing debt has disappeared. Be mindful of this and DO NOT use your credit cards while you’re paying your loan.
- Be sure to look at all of the fine print. Many companies will charge fees and you’ll want to know exactly what you’re paying for with your loan.
- And as mentioned above, you just may end up paying more in the long run because your payments are spread out over a longer amount of time.
Consolidating your debt can make sense for many. And using a get out of debt loan could work for you.
However, before you sign on the dotted line, make sure you know what you’re getting into. Make sure you can make the payments. Have confidence in your ability to not incur any more debt. Protect yourself and your finances.
Latest posts by Kori (see all)
- Make Time and Space for Yourself So You Can be a Better Mom - January 25, 2021