Many people find themselves struggling with debt from multiple creditors. Consolidating these debts can be a significant step toward getting out of debt and save you a great deal of money.
The idea is simple – you take out a loan that pays off all your unsecured debts, and then pay back the loan over time. You won’t owe less money, but instead of juggling multiple bills each month with high interest rates, you pay one loan payment per month. Most importantly, debt consolidation loans generally have a fixed interest rate that can reduce your interest rate and save money.
How debt consolidation loans work
How do you know if a debt consolidation loan is appropriate for your specific situation? Well, for starters, these loans are only used for unsecured personal debt – that is, debts that don’t have collateral behind them. So you can’t use a debt consolidation loan to pay off a mortgage or a car loan, for example. Unsecured debt is most commonly credit card debt, but also can include some types of student loans and other personal loans.
Again, taking out a debt consolidation loan won’t change the amount you owe, but can make paying back your debts much more manageable. Interest rates on loans are generally much lower than interest rates on credit cards! If you make payments on time, having a debt consolidation loan will improve your credit score, too.
Types of debt consolidation loans
Debt consolidation loans can be secured, or tied to an asset such as a home or piece of property, or unsecured. Secured loans do carry the risk of losing the asset and closing costs may apply, but can be for a higher amount, have a lower interest rate, and are paid back over a longer term. Sometimes the interest rate on secured debt consolidation loans is tax deductible. On the other hand, while unsecured loans have no risk of losing the asset, they have a shorter term and higher interest rate, no tax benefit, and are usually harder to obtain from a lender.
How to get started
To find out if you’re eligible for a debt consolidation loan, stop into a Slovenian Savings & Loan branch today. We’ll take a look at your situation and explain your options and eligibility – so you can make an informed decision.