Debt Consolidation Loan

Debt Consolidation Loan

Considering a debt consolidation loan? Get the facts.

What You Need

To get a debt consolidation loan, you're going to need collateral, and that collateral has to be something equal in value to the amount of the loan. Since the average American household carries $9,300 in credit card debt, we'll use that as our example. We'll pretend you have $9,300 in debt. Let's also pretend that your car is paid for and worth about that much. That would be your collateral. Now, some people use their house as their collateral, but that's not smart. Obviously, a house is more than likely worth a lot more than you owe in unsecured debts, so if you default on the loan, the bank gets your house. That doesn't seem like a fair trade now, does it? That's why it's better to use a car that's paid for (or something similar) as your collateral. Of course, nobody plans to default on their debt consolidation loan, but if something out of the ordinary happens (like you lose your job) then it could realistically happen.

Okay, you've got collateral and been approved for your debt consolidation loan. The debt consolidation company sends you a check, you deposit it and pay off all your creditors. What a great feeling! Your credit rating just improved by paying all those debts off, too. Now you should probably close all those accounts except for one MasterCard or Visa that should only be used when absolutely necessary. For all of you skeptics out there, yes, this is replacing one set of debts with another, but the beauty of debt consolidation loans is that the interest rate is usually in the single digits. The better your credit is, the better rate you'll get. As a result, you can have the debt consolidation loan paid off in five years. It would take you 13 years or more otherwise, and that's assuming an average interest rate of 14%, which is a low estimate.

See? A debt consolidation loan might be exactly what you need.

About Us | Contact Us | Site Map | What's New | Related Resources