In the current global financial scenario, it’s very common to find debt-ridden people. And to add to the woes, recession means no pay raise and no incentives; instead it adds a lump sum to your expenses. In such a scenario, it’s highly probable that you will end up using some kind of financial aid. While this seems like the easiest way out of your temporary financial crunch, it won’t be long till you realize the truth of the situation.
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Trouble begins with endless bills every month, and soon you’ll find that all your earnings go entirely into repaying your debts, leaving nothing for the present expenses! One of the best alternatives to work your way out of this vicious cycle is a debt consolidation loan. However, like everything else, a debt consolidation loan can’t help get rid of all your debts in a few days and get your accounts straight like nothing ever happened. Though that would make things convenient, that’s not how it works.
Here are some facts about debt consolidation loans that you should be aware of:
1. Mortgages as easy debt consolidation loans: The easiest way, to repay all your creditors at once, is by mortgaging property. Mortgaging your house, empty land or an old farmhouse is undoubtedly your easiest escape route from never ending payments. So, as long as the value of the mortgage loan is more than your debts, this will put an end to your prolonged financial crisis.
2. Fret not, there are other ways out too: The best part about debt consolidation loans is that irrespective of your situation, there’s always some solution to the huge number of bills pouring in throughout the month. So, in case you don’t own valuable property or other similar assets that you can mortgage, don’t panic. Even if you’re touching the very bottom, you can still apply for a debt consolidation loan (or zero APR credit cards, personal loans, home equity loans etc).
3. Late fee avoidance benefit: Another reason why opting for a debt consolidation loan is a good idea is; even if you’re not completely broke and barely scrape through and manage to pay your bills, you end up wasting a lot of money on late fees and all the extra fines that come along with every bill, plus it also ruins your credibility among several creditors. So, if you opt for debt consolidation, you can afford to pay all your bills on time without splurging your scarce bank balance on fines.
4. Interest rates are the key: Watch out for the rate of interest on your loan. Some debt consolidation loans can have huge rate of interest. If that’s the case, then opting for consolidation may not be the best idea, because you’ll just ending up spending the same money or sometimes even more, the only difference being that you’ll have to pay one creditor a lump sum amount instead of paying small amounts to several different lenders.
5. Choosing the wrong plan can mean more problems: Sometimes it seems as though the consolidation plan is a relief because you pay a very small amount every month. But beware, because you might be piling on the interest amount to such levels (after an initial period) that it might be impossible for you to pay back.
6. The long-term solution lies in better money management: Though debt consolidation loan relieves most of the burden, it doesn’t completely solve the problem. It simply gives you a way to put a hold on your worsening financial situation. Once you get a certain gap from paying bills and clearing pending loans non-stop, what you really need to do is to escape this problem forever. So, plan your finances better henceforth. You can try getting some financial advice from a professional; it proves to be very helpful in most cases. All in all, you need to learn the important concept of money management and that ought to solve your problems right away.