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That can lead to a domino effect where you miss payments, your interest rates get raised, and then you can’t stay above water.
A consolidation loan can sometimes lower your monthly payment, and that can give you enough breathing room to get back on track.
If you’re in debt, you may have asked yourself: “Is debt consolidation a good idea?
” In this post we’ll help you answer that question by explaining how a debt consolidation loan works, what the alternatives are, and describing when debt consolidation can help you and when it will not. You need all the information in order to make the best decision, so that you can turn your finances around as quickly and painlessly as possible. It’s a loan that allows you to pay off your current debts with a new loan that has different terms (usually from a different lender) than your current loans or credit cards.
And while it makes sense to do business with an institution that you already know and trust, you may be disappointed if you get turned down for a loan.Most debt consolidation loans are offered from lending institutions and secured as a second mortgage or home equity line of credit.These require the individual to put up a home as collateral and the loan to be less than the equity available.The reason this can be helpful to people with a lot of debt is that it can solve three of the worst problems you face: 1) High interest rates Some types of debt (particularly credit cards) can have extremely high interest rates – up to 25% or more.If you’re in that kind of situation, there’s a good chance your debt will grow faster than you can pay it off.
So even if you get approved for a loan, you could end up paying more in interest and fees than someone with better credit.