Personal Debt Consolidation Loan – a Quick and Useful Guide for You

A note on a table reminding that the debt has to be paid.
Photo by Towfiqu barbhuiya on Unsplash

One of the most important steps to fight outstanding debts is to have a comprehensive debt management plan in place. A personal debt consolidation loan is an interesting option to look at when creating an effective debt management plan. It is therefore important to get familiarized with the concept of personal debt consolidation loans and how they help in cutting debts.


What is a personal debt consolidation loan?

A personal debt consolidation loan offers you the convenience of transferring your existing debts on to a single loan. In other words, a solitary loan is used to pay off all existing debts. Thus, the existing debts are wiped away and you are left with a single loan amount to pay back.

Getting personal debt consolidation loan through a debt consolidation company?

Using the services of a debt management company or a professional debt management agency would be the way to go unless you are very skilled in debt and money matters.

When you apply for a personal debt consolidation loan, the debt consolidation company takes a thorough measure of your debts, the interest rates that apply to them and the minimum payments required per month to pay off these debts. They then make an estimate of your paying capacity. By taking into account your monthly income, they estimate the amount you can devote each month to your debts. They establish contact with your creditors and negotiate the best (lowest) possible interest rates on your debts.

Finally, after going through the procedures as stated above, the debt consolidation company devises a monthly payment plan for you. You pay a single monthly payment to them, which is then divided amongst your creditors in a specific ratio.

What are other benefits of a personal debt consolidation loan?

Apart from consolidating your debts on to a single loan, there are other advantages of a personal debt consolidation loan.

These loans are generally offered at rates which are usually lower than the rates that apply to your debts. So, you end up saving some amount by taking such a loan.

Personal debts consolidation loans offer you longer payback time periods. This has a direct effect on the monthly payment amounts. This amount reduces and you get a little more flexibility in planning your monthly budgets and finances.

Moreover, you don’t have to mortgage your home, property or assets in lieu of an unsecured personal debt consolidation loan.

What factors should be considered before going ahead with a personal debt consolidation loan?

1. Time-period: Before you sign up for a personal debt consolidation loan, check that the loan term should be such that you do not end up paying more than what you would have paid for your unconsolidated debts.

2. Rate of interest: The interest rate should be in tune with your paying capacity. Calculate the amount before-hand that you will end up paying once you take your personal debt consolidation loan. If this amount exceeds the amount that you would have paid for your unconsolidated debts, you need to borrow at a lower rate of interest.

3. Terms and conditions: Check the loan offer very precisely for any hidden charges, extra payments etc. Sometimes, the terms may force you to put forth collateral to get lower rates of interest.

4. Financial advice: It will be a good to utilize the services of a reputed debt management company. These organizations take a stock of your financial situation and then device a debt management plan. A good debt management company will guide you to a debt consolidation loan cut out to suit your needs and pay back capabilities.

It should always be borne in mind that personal debt consolidation loans ease out the way you repay your debts. These loans, by no means, wipe away your debts. You should make use of such loans as a part of your debt managing plans.

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