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A Consolidating Debt Loan: Using a Service to Consolidate Debts with Loans

Consolidating your debts with loans involves taking out a loan to pay back all your other debts. This is generally obtained at a lower interest rate, on better terms and you have the convenience of settling only one loan.

A number of unconsolidated loans can be consolidated into another unsecured loan, but, generally, when people consolidate their debts, they tend to go for a secured loan so that the interest rate that has to be paid will be lower. Generally, a house is used as the security, in which case, the house will be mortgaged. Since the risk to the lender is reduced due to the security, he offers a lower interest rate.

In theory, a consolidating debt loan is a good idea when people are burdened with high credit card debt. The interest rate charged by credit card companies tend to be exorbitantly high because of the fact that such debts aren’t secured.

Due to the advantage that debt consolidation gives for people who have a high credit card debt, companies generally take advantage of this benefit to charge very high fees for the debt consolidation loan. Quite often, these fees are dangerously close to the maximum allowed by the state as mortgage fees.

A lot of concerns have been raised over consolidation debt loan services, most notably, the fact that people can’t resist the urge to consolidate all their unsecured loans into a secured one, generally securing it against their house. Though the monthly payments can be low (due to the payments being made over a longer period of time), the total amount paid may be quite high.

Moreover, since the amount of money being paid every month falls, people tend to get themselves into more debt due to the fact that they have more money in their hands.

Some debt consolidators require that you have a co-signee when you sign a consolidating debt loan agreement. The obvious risk to him is that if you default, he has to pay out your loan.

There’s also the danger that if you, for some reason, are unable to make your payments, the debt consolidator will take possession of your house.

Also, debt consolidators may not be too willing to consolidate your loans if you don’t have a good credit history.

In conclusion, for debt consolidation to be really worth it, the sum of your payments should be less than that which you pay on your currently outstanding debts. Moreover, the interest you pay for your new loan should be less than the average interest rates of your outstanding debts. In a nutshell, you must be an extremely disciplined person for debt consolidation to work. Indiscipline has lead to people mounting their debts.

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