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Reasons that Debt Consolidation Loans are so Beneficial

While debt consolidation is not for everyone, a growing number of people that need to get debt under control find that this option is highly beneficial. Before anyone takes out a loan such as this, it would be important for him or her to look at the various programs available and then make comparisons among the different lenders. The goal of a reputable lender that offers a debt consolidation loan is to provide people with relief from unsecured debt, as well as eliminating stress, stopping ongoing and harassing phone calls, giving that person financial freedom, and creating an opportunity for the borrower to start rebuilding good credit.

Loan companies that offer debt consolidation loans can help with all types of debt to include credit cards, unsecured bank loans, medical and dental bills, liens, judgments, and even legal fees. Sometimes, the lender would allow the borrower to take out a little extra money that could be used for college expenses, car repairs, home upgrades, and other personal needs. Now, just as there are certain types of debts that a debt consolidation lender would cover, there are also types of debt not covered to include car loans, loans back by the government, mortgage loans, student loans, child support, and loans whereby property is used as collateral.

A common mistake made by a person taking out a debt consolidation loan is that shortly after having credit cards paid off new charges are made. Before long, this person not only has the payment for the debt consolidation loan but new credit card debt, which means the individual is in worse shape than before taking out the debt consolidation loan. Because of this, anyone wanting to take out a loan such as this should immediately cut credit cards up and cancel them, perhaps leaving just one credit card account open but to be used solely for true emergencies.

While a debt consolidation loan offers many incredible benefits, some negative aspects also need to be understood. For one thing, the unsecured debt associated with a debt consolidation loan becomes secured debt. Therefore, if the borrower were to mismanage the loan by not paying on time or paying according to the agreed upon terms and conditions, the lender could take legal action against the borrower for defaulting on the loan. Additionally, the lender would provide negative reporting to the three credit bureaus, impacting the borrower’s credit score.

In many instances, a debt consolidation loan would be scheduled over a period of 15 to 30 years. Two great things about a loan of this type is that interest is usually low and on the amount of money borrowed, people could enjoy a tax break of .35 for every dollar of interest paid. While a debt consolidation loan is certainly a viable solution, people need to remember that the way these lenders make money is based on a percentage of fees charged. Usually, these fees are fair but some lenders go overboard charging way too much. Therefore, the borrower needs to conduct research so various lenders could be compared, providing them with the opportunity to choose the most reputable lender possible.

With a debt consolidation loan, in addition to debt from a number of creditors being paid off and rolled into a single loan, the borrower enjoys a lower monthly payment, as well as shorter pay off time. Because there are many factors that go along with a debt consolidation loan, many lenders provide borrowers with free consultation. During this time, the lender and borrower have the chance to sit down face-to-face, discussing options but also pros and cons to make sure the loan is the right solution for that particular person’s situation.

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