Articles » Debt Consolidation Loans
A debt consolidation loan is a loan that is given by a lender to a consumer in order for them to consolidate balances from higher interest products, such as credit cards, into one loan. As all the balances are combined into one loan, the consumer only has to make one payment each month.
A debt consolidation loan is typically an installment loan, on which a fixed payment is made every month for a specific duration of time. Depending on the amount of the loan that was extended to the borrower and their ability to pay, this period could vary from 12 to 60 months.
Before taking out debt consolidation loans, consumers should carefully look into their financial situation and debts before making a decision. If you only have 2 or 3 credit cards with balances, you could first try contacting the credit card companies to see if they could lower your interest rate. Many banks are willing to lower the interest rate on credit cards to customers who have been with them for several years and have maintained a satisfactory payment history.
On the other hand, if you have multiple debts which have high interest rates, such as department store credit cards, it could be a good decision to consolidate those balances into one loan on which you would pay a lower interest rate. Remember that the lower your interest is, the more of your money goes to actually paying your debt instead of simply paying off interest.
Applying for a debt consolidation loan is relatively easy. Usually, all it takes is filling out a form with information about your finances and the debts that you want to consolidate. Lenders will take a look at factors such as your credit history and income to determine what interest rate you will be charged and the maximum amount of loan that they can give you. If you have less than perfect credit, this does not necessarily disqualify you from getting debt consolidation loans. Many lenders are willing to work with people who have poor credit history, however do take note that in some cases the interest rates might be slightly higher for the loan, but still much lower than what credit card companies typically charge.
