If you're having serious debt problems, I don't have to tell you what a bad effect it can have on your life. You know firsthand what it feels like to wake up every morning knowing that you may be receiving threatening calls from debt collectors or that your wages may be garnished. Debt can actually tear families apart. For that matter, if you're having serious problems with debt, you can actually be experiencing symptoms such as heart palpitations, acid reflux, frequent colds, chest pain, diarrhea or constipation.
A debt consolidation loan?
One quick way to get your debts under control is with a debt consolidation loan. However, make no mistake. A debt consolidation loan can do some good things but it can't eliminate your debts. In fact, the biggest downside of a debt consolidation loan is that it only moves your debts from one set of lenders to another.
First, the positives
There are some positives to a debt consolidation loan that could make it a good way to manage your debt. For one thing, it will get all those credit card companies and debt collectors off your back. Second, instead of having to make payments to multiple creditors every month, you'll have to make only one payment to the bank or credit union where you got the loan. Third, your payment should be less than the sum of the payments you've been making each month. And fourth, you should have a much better interest rate than what you're paying now on your credit cards and other unsecured debts.
Now, the negatives
The biggest negative of a debt consolidation loan is what I mentioned in a previous paragraph. It won't eliminate your debts. It may make it easier for you to pay back what you owe but you'll owe the same amount, plus interest. And speaking of interest, it will probably cost you more because you're taking more time to pay back your debt. As an example of what I mean, if you were to borrow $15,000 at an interest rate of 4.9% and a 7-year term, you would end up paying$17749.58 or nearly $2800 in interest.
If you could get the loan
Of course, this is all based on the assumption that you could get a loan for the amount of money you would need to pay off your debts. The brutal fact is that you might not be able to get that loan or at least not at a reasonable interest rate. Bankers can be very cautious about loaning money to people who are already in trouble with debt.
Do you owe more than $10,000?
If you owe more than $10,000, you might not be able to get an unsecured loan. This means you would have to have an asset you could pledge as collateral to get a secured loan. Do you have an asset worth this much such as the equity in your house? If not, you could find it difficult if not impossible to get a loan large enough to pay off all your debts.
In summary
To summarize, a debt consolidation loan could help you get your debt under control - depending on your circumstances and so long as you understand both its pros and cons.
