Debt Consolidation Loan - Invaluable Ally During Difficult Times?

The economic crisis has badly affected the confidence of the masses in the economy and their well being. Job security has become a big thing and people are adopting conservative approaches towards debt. If you want to protect yourself, then opt for debt consolidation. The primary motivation behind debt consolidation is improvement of the cash position.

If you want some extra cash in your hands, then debt consolidation is something you should consider very seriously. It will help bring down the interest rate charged on your debts - all your debts.

Amongst all your loans, your home loan will be the cheapest because the risk of the lender is mitigated by the mortgage of the house. Hence, the lender will not charge high interest on the loan.

At the opposite end of the spectrum is the credit card debt. It is unsecured and the lender has no protection if you default on repayment. Hence, banks and issuers charge high interest on this debt. You cannot avoid high interest payment on the unsecured debt.

All Your Loans Combined in One

Debt consolidation combines all your loans - secured as well as unsecured into a single loan. This will bring down the interest rate charged on your loan. Further, it will bring down your monthly payments and leave you with extra cash in your hands. Consolidate your debt and balance your budget without any difficulty.

Where is the catch?

The catch lies in the fact that your consolidated loan will stretch over a longer period of time as compared to other loans. Hence, your interest payments will be significantly higher. Short term loans are consolidated with long term loans and are repaid together. A personal loan will not extend beyond ten years.

On the other hand, a home loan may run for even 30 years. Your 10 year loan will be combined into your 25 year loan and you shall make repayment for the entire 25 year. You will be paying more on the 10 year loan. This cannot be avoided.

This feature of consolidated loans must be acknowledged and provided for. Hence, you should go in for debt consolidation only if you face the risk of losing your home or ending up in bankruptcy due to immediate cash flow problems.

A Better Option

Debt consolidation will help you tide over any crisis without any difficulty. Once things improve, you can proceed to make extra repayments to finish the debt quickly. Consolidation is much a much better option as compared to bankruptcy or foreclosure.