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Debt consolidation takes all of your unsecured debt and combines them into a single monthly payment. Usually, this is done by taking out a debt consolidation loan that is used to pay off the debts. Then instead of having to make many payments with many interest rates to many creditors, you only have to make a single payment to pay the consolidation loan. Debt consolidation can be achieved by taking out a debt consolidation loan from a bank or by using a home equity loan.
If you choose to consolidate your debts it is important to ensure you can make timely payments in full. This is because your home is now tied in with all of your unsecured debts. If you begin missing payments or something happens that you are unable to make your payments, your home can be foreclosed on.
Using a Debt Consolidation Company
Some people turn to a debt consolidation company for debt consolidation Bend Oregon. These companies do not always use a loan method to consolidate your debt. Instead, you send your monthly payment to the company and they take care of splitting up the payment and sending it out to your creditors. In this scenario, your individual debts still remain separate.
The Good and The Bad
As with any loan, there are positive aspects and negative aspects. Debt consolidation is effective and beneficial if you can get a lower monthly payment, a reduced interest rate, or both. If this can be achieved with consolidation, you can enjoy some needed relief with a payment that is more affordable. However, it is important to remember that even though you feel like a burden has been lifted off of your shoulders, the debt is still there and it has not been reduced.
The lower monthly payment is often achieved by increasing your loan length. That longer length means that you will be paying for a longer time period than you would have if you left your debts separate. It also means you will be paying more overall because the associated interest rate will be carried longer too.
People who look for relief with a debt consolidation company may be desperate. There are companies out there that prey on individuals who are in difficult situations. These companies will often push high-interest rates that will make it difficult to pay off their loan so they can enjoy the interest that is accumulated.
Other companies may take several months of payments from you and not pay your debts off with it. Instead, they pocket your payment. By the time you realize what is happening, you are in a situation that leaves your credit mangled and your financial situation dire.
Therefore, it is imperative that you take the time to review companies to make sure they are legitimate and look through their products thoroughly. Doing so can help you avoid getting into a worse financial situation than what you started with.