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Unsecured Debt Consolidation Pros and Cons

By Edited Sep 17, 2015 0 0

Do you have a lot of debts that you want to pay off? Unsecured debt consolidation can help you to combine all of your credit card payments and unsecured personal loans together. There are some good things about rolling all of your unsecured debt into one pile and there are some bad things. You will want to know both sides of the story before you decide if you want to consolidate unsecured debt. There are also ways that you will be able to get unsecured loans for debt consolidation that you will want to know about.

One of the advantages that you will be able to get from getting an unsecured debt consolidation loan is being able to combine all of your debts into one payment. This means that you will not have to sit down when all of the bills are due and try to figure out who to pay and when to pay them. You will only have one monthly payment that is due for all of the personal debt that you have consolidated.

Another advantage is that you will be able to get lower payments. With unsecured debt consolidation loans you will be able to get a lower interest rate than you are getting with your current loan and you will be able to spread the payments over a longer time period making them lower. If you want to pay off your debts at a quicker rate than you currently are then a lower interest rate will help you to be able to do that. You will be able to apply more of your payment to the principal of the balance due instead of paying a huge percent of interest and a small percent of principal like you are currently doing. If you want to lower your payments so that you have more cash to do other things with you can spread out the loan term over a greater number of years than your current loan and you will have a lower amount due each month.

The application process to get this type of loan is very quick and easy. You will also find that there are several lenders and brokers that help with unsecured debt consolidation, and will be able to help you even if you have a bad credit score. This gives you a lot of options to choose from and will also guarantee that you get a competitive rate. There are also certain government sponsored programs that are intended to help people that are in distress avoid bankruptcy by consolidating debts and lowering overall payments by either lowering the interest rate on the combined debt and/or spreading out the time of repayment for a longer period.

Not everything is glorious about getting an unsecured loan for debt consolidation. There are a few things that you will want to be aware of so that you will know what to look forward to when you start to explore your options with different lenders. Being smart with you finances means taking a look at both sides of any financial decision and taking on this type of consolidated loan is no exception.

One disadvantage for some people when it comes to consolidating unsecured debt is that they do not close the accounts that they have consolidated the debt for. If you trying to find unsecured credit card debt consolidation and you do not close the accounts after you have consolidated the payments you may be tempted to use those cards again. Some people justify this by convincing themselves that they may need the ready credit at some point in the future. If you go this route, there is a very high likelihood that you will have more debt that you will have to worry about and you have a higher rate of interest to pay. In other words, if you don't close the accounts you are consolidating the debt for, you could very easily be in a worse debt situation a few years down the road. If you consolidate all of your credit card payments into one payment then it is best to close the accounts that you have consolidated and get out of debt before you think about opening other accounts and using them. This is the way to financial freedom because being free of interest payments means having more to spend.

Another disadvantage of unsecured debt consolidation is that people with bad credit will not be able to get as low of an interest rate as people with good credit. If you have bad credit then you may need to try to straighten a few things out before you apply for an unsecured debt consolidation loan. Get current on all payments to all credit cards and other unsecured debt. By being up to date on everything you can make a stronger case for being able to make the payments on the new consolidated loan. This will help you to get a lower rate and will help you to get out of debt faster.

Some people consider it a disadvantage to choose to pay their loan back over a longer period of time. When you decide to increase the number of years that you have to pay back your loan you are making the decision to pay more interest. Your monthly payments will be lower but interest is a factor of time, so the longer you pay your payments the more interest that is collected by the financial institution that you get your loan from. This may be a necessary penalty that you have to pay in order to get more financial breathing room for the time being. And that is okay as long as you are determined to get your financial situation on more solid ground. You can always make extra payments to pay off the consolidated debt early.

When you are trying to decide between all of the options available for unsecured debt consolidation it is important to look at both sides of the picture. There are a lot of great things that getting an unsecured debt consolidation loan can help you to achieve. You will only be responsible for making one monthly payment at a lower rate of interest and you will be able to build your credit back up. On the other side, you will be paying more interest and you may not get as good of a rate if your credit score is low. Decide what is important to you and make your decision based on the information that you have collected.



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