We all know that a debt consolidation loan is an effective way to repay debts. In a debt consolidation loan, all debts are clubbed in a bigger loan. The loan duration is increased so as to make the monthly installments smaller making it easier to accommodate financial capability of the borrower. However, there is a myth surrounding debt consolidation loans that it saves money on interest. This is simply not true. Here are some of the debt consolidation facts that you must be aware of -
Fact 1 #: In a debt consolidation loan, multiple debts are converted in to one big debt. So, if you have four debts of $3000, $5000, $10,000 and $12,000 then the debt consolidation loan would be of combined value of all these debts i.e. $ 30,000.
Fact 2#: The loan period is extended. If your multiple debts are of different durations then in a debt consolidation the loan duration is freshly negotiated and the period is extended.
Fact 3#: The monthly installments are smaller. Longer duration means that your monthly installments will be smaller thus helping you in serving the installments in a better way.
Fact 4 #: The debt consolidation loans don't save money. On the contrary; it is more expensive than your earlier debts as you would be paying for longer terms but in smaller proportions.
Fact 5 #: Debt consolidation is not for everyone. If you are able to pay installments of your current debts in time then debt consolidation is not for you. It is beneficial for those people who have huge debts and are unable to pay installments of it due to various reasons. Such people can lower their installments and make it within their reach and pay the debts systematically.
The above debt consolidation facts will help you understand the process of consolidation of loans in a better way and thus help you take an informed decision without getting swayed by the marketing tricks of lenders. So, if you feel that you are unable to pay current installments as they are more than you can afford, then you can avail a debt consolidation loan to lower the installment amount and repay your debts.
Debt consolidation loans are provided by almost all lenders in United States. However, shop around before availing a loan so as to get the best of deals on your loans.