Debt is now a reality of life for many people. In fact, it’s not uncommon for someone to be thousands of dollars in consumer debt (not including their mortgage) with the average at about $15,000 plus.
That being said, many people (perhaps yourself included) feel embarrassed about their debt and instead of dealing with the problem head-on, they try to hide it and manage it alone. In the worst cases, some people even just ignore the problem all-together. This can lead to a downward spiral where the debt continues to grow when more loans are taken out and the interest just keeps accumulating.
It’s time to end the vicious cycle and take back the reins of your financial situation. Though it may be challenging, it’s absolutely necessary to find a solution to your growing debt, or else things will just continue to get worse and the harder it will be to recover.
Apply for a Debt Consolidation Loan
One solution you may not have considered yet is a debt consolidation loan. What happens is you request a loan from a first-tier lender (like major banks and credit unions) and they will combine your unsecured debts into one with a set interest rate. The benefits of getting local debt consolidation help are many:
- Typically a lower interest rate
- Single monthly payment instead of multiple
- Pay debt off faster
- Generally no fees when borrowing from first-tier lenders
That being said, there are some things you should know before applying for one.
Disadvantages of a Debt Consolidation Loan
The idea of paying for all your unsecured debts in one place at a lowered interest rate sounds pretty enticing, right? Unfortunately, there are disadvantages. For starters, debt consolidation loans can be difficult to obtain, and in some cases may just end up contributing even more to your financial woes.
A Credit Check is Required
Both first-tier lenders (banks and credit unions) and second-tier lenders (finance companies) do credit checks before approving a consolidation loan. If they review your credit score and see that you are a high-risk borrower, you are unlikely to get approved. This is unfortunate considering many people who need a debt consolidation loan are the ones with poor credit scores.
Will Often Request Collateral
Many lenders will require that you have property or assets as a security in the event that you are unable to pay back the loan. They may approve you if you are able to get a co-signer with good credit and a high net worth.
Some debt consolidation loans can come with high interest rates. While low-risk borrows can see rates of 7% to 12%, those considered high-risk will get rates around 14% to even as high as 30% (particularly from second-tier lenders).
Will Things Really Change?
If you manage to pay off all your debt, will you just end up right back where you started due to bad spending habits? While a consolidation loan may be useful, it’s important that you make dramatic lifestyle changes so that you are better able to manage your money and don’t end up in debt again.