Monday, 24 March 2014

Consolidation loans

Getting stuck with a bunch of small loans is surprisingly easy. In fact, not getting stuck with small loans, store card debts, credit card debts and even payday loans requires significant restraint and self-discipline. In real life, most of us cannot spare the time or the effort to always calculate every expense and its consequences, so we are not quite aware of how much we are spending. Also, during everyday life, we are regularly confronted with the need or desire to spend more than we should and/or have at our disposal. We rationalise this notion with different phrases: “just this one time”… “this is the last time”… “this is really necessary” … “it’s such a bargain”… We all have a Shopaholic sleeping within us, it just happens that our defences fail sometimes in the face of temptation or necessity. 

The problem is that those small debts can add up to astronomical monthly payments. In that case, it is best to consolidate loans, spread the payment plan over a longer period of time, and lower the interest rate. And even if you are not having financial problems, you might consider consolidating your loans, since that this move may significantly reduce your expenditures.

What is a consolidation loan? In essence, a loaning agent takes all your loans, pays them off, and then gives you a longer period of time to pay it all back.

Most people will benefit from having a single, smaller monthly payment obligation. Such payments are much easier to keep track of, and paying them on time is beneficial to credit record. In case of consolidation loans, interest rates are usually much smaller than with payday loans and store cards, so in the long run, they make much more sense. If you consolidate your loans, your payment plans will be longer in duration, but much more affordable.

A slight problem might be that most lenders give consolidation loans only to those who have means and assets for securing such a loan. There are unsecured consolidation loans available, but their interest rates are also quite steep, and their only benefit might be turning all the payments into one.

In case of consolidation loans, secured or unsecured, the risks are quite the same as for the other secured and unsecured loans. Failing to pay the loan might result in repossession of any property you may own or any future earnings you may score.

The biggest mistake that consolidation loan customers make is to fall back into the same pattern of difficulties, which led them to taking a consolidation loan in the first place. New store credits build up, new pay day loans are taken, and with the addition of consolidation loan payments, a person just cannot cope with all the payments that are due. In the end, it is still a matter of your personal powers of restraint and self-control.

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