… one single borrowing to get completely debt free
Debt consolidation loans are define as one single large borrowing that is lend to an individual so that he or she can repay all of his/her debts in one single row. Debt consolidation loans basically reduce the burden of handling multiple individual debts from debtor’s shoulder.
Merits of Debt consolidation loans:
1. Handle one creditor instead multiple
If you are handing more than two or three creditors simultaneously then you can reduce your time and energy by switching into debt consolidation loan that gives you a freedom to deal with single creditor only.
2. Lower interest rate
If you calculate and add up all your monthly installments and compare them with your monthly income then you will realize that how much interest you are paying under these individual multiple debts. Debt consolidation loan assimilates all your multiple debts into one large debt with lower rate of interest.
3. Monthly repayments will be reduced
Under debt consolidation loan your repayment period will be increased with low rate of interest. This will benefit you to pay low and affordable monthly installments to your creditor. It might also increase your chance to do some savings.
4. Tax benefit
It also provides you tax benefit. Since you have low monthly installments to pay with lower interest rate that means your overall tax also be reduced or might be nil as compare to previous individual debt repayments.
Types of debt consolidation loans:
1. Secured debt consolidation loans
It is similar to any other secured loan. Secured debt consolidation loans are backed by security or collateral so as to minimize the risk of lender. The main advantage of secured loan is it offer large sum of borrowing on lower interest rate. Moreover it is readily available in the market. But greatest disadvantage is that debtor might loose his/her house or collateral if they fail to repay their debt timely.
2. Unsecured debt consolidation loans
It worked quite opposite to secured loans. The borrowings under unsecured debt consolidation loans are not backed by any collateral. Debtor’s credibility is the only security on which lender have to rely while borrowing the money. This is the reason that unsecured loans offer small sum of borrowings on higher rate of interest.