How it works
A debt consolidation loan essentially pays off all the smaller debts and replaces the multiple minimum payments with a larger single loan. When you have such debts as credit card or medical bills, you often will be saddled with a minimum monthly payment. Three or four monthly payments of $25 or $50 or even $100 will quickly add up to a sizable chunk of your income. With a consolidation loan, you will still have a minimum amount to pay, but it is likely to be less than the total of the other minimum amounts. You may also be able to obtain a lower interest rate than with some of the high interest rate credit card debts
Saving money
By acquiring a debt consolidation loan you can choose carefully and you will be able to save money on your overall debt especially in the portion that you have been paying in interest on the principal. By consolidating debts into one balance and one payment, you have only one minimum payment amount to remit each month. Another way in which you can use this type of loan to save money is to obtain a loan which has a lower interest rate than the higher rates typically charged on credit card debt. Potentially, you can save several percentage points in interest plus additional monthly payment savings which can apply to the principal, rather than to interest.
Improving your score
When you are taking out a debt consolidation loan, you should be certain that the cost of the loan is offset by the savings in overall cost of the loan. A sure fire way to do so is to improve your credit score prior to obtaining the loan. You are almost certain to save money because your interest rate will drop as your credit score increases in most cases. If you improve your credit score, it will open up some other alternatives for financing so that you no longer need to pay those high credit card interest rates.
Tie it to your home equity
Another way to save money on your debt consolidation loan is to obtain the loan and link it to the equity you have in your home. If you are a homeowner with equity in your property, you often can access that equity in the form of cash for any purpose you like, including that of paying off your debts. By using equity from your home, you can pay off nagging and high interest debts and replace them with a single loan attached to the value of your home.
Negatives
A debt consolidation loan is not the answer to all your financial worries. If your spending has been out of control and you use a loan to pay off other loans so that you can continue to spend at the same level, you will soon find yourself and your finances in even deeper trouble. Conversely, you can use the loan very effectively to save money in interest, in minimum payment amounts and potentially some tax savings
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
Credit Damage
By: Cindy | 20-07-2008
what is more damaging to your credit report credit card lates or a foreclosure?
I have a credit card in my name. Is my husband ...
By: helenkusek | 20-07-2008
I have a credit card in my name. Is my husband responsible to pay my debt?
How can we save our home and ourselves?
By: teebee | 20-07-2008
We have been making payments on our mortgage for 8 years on our home wthout so much as a dent in the principle balance. I have spoken with my mortgage company and they justified this by telling me that I am accruing $11.50 a day in interest.
My family has been in economic hardship for a number of years and we have been trying to stay afloat. Our credit is damaged and we feel hopeless. We have also been trying to sell, and our home along with 200 other homes in our community are not selling. What are our options? How can we change the amount of interest accruing so we can survive?
I've got a very bad feeling about this ...
By: grafxxgal | 20-07-2008
Dear Mr. Reed:
First of all, thank you in advance for your time and thought on this question. Three years ago, I was facing foreclosure due to finances arising from medical issues with my only child.
Instead of going through foreclosure, I engaged the "help" of a mortage rescue company. They said they would buy my home, help me clean my credit, let me stay in home.
I had a sinking feeling at the closing when I saw them put a check with MY equity in their pocket, literally.
Now, it's been three years, I haven't received my mortgage interest statement for this year, their "credit cleaner" hasn't contacted me, even after repeated requests and they are not responding to registered letters.
I initiated a complaint with the attorney general's office and they said they've had several complaints about this firm.
In addition, they sold my home to an "investor." My fear is that if they go belly-up, I'm "renting" my home from someone who I don't know and are they bound by agreement I had a closing with this company.
What a mess I've made for myself.
Thank you.grgrafafxa
Confuse father of two
By: Gabriel A. Griego | 20-07-2008
Got a question about personal finance? Type your question here...I currentlu have two mortgages where I bout a new house thinking that the old house will sell fast. I live in southern California adn that did not happen. Both current loans are negative arm loans where I am not even paying down the interest. The values of both homes are dropping every month. the current loan amount are about or slighltly above appraised value. What do i do!!!!
Financial__Assistance
By: choko209 | 20-07-2008
I__am__about__to__be__evicted__and__I__have__2__children.Is__there__a__way__that___I__can__still__save__up__and__move__somewhere__else__after__this?
Q&A Powered by:
Latest Debt Consolidation Articles
Responsible Borrowing Starts Young
By: Christian Ward | 26/07/2008
Why has ‘debt consolidation’ become such a common phrase nowadays? Unfortunately, the answer’s straightforward – it’s because debt has become a way of life for so many. It’s a sorry reality for even the youngest adults in our society, as illustrated in a recent publication from Rainer, the national charity for under-supported young people.
Debt Consolidation Loans Can Help Ease the Pressure
By: Christian Ward | 26/07/2008
Debt. It’s something we are reading and hearing about more often every day that goes by. With the UK’s debt currently over £1,430bn it is hardly a surprise that more of us are feeling the squeeze and are in need of help.
Unsecured Debt Consolidation Loans for Tenant: Plan for a Debt Free Life
By: Richard Shephard | 26/07/2008
Clear all your pending debts with unsecured debt consolidation loans for tenant.
Get a Government Grant - Get Free Government Grants Online and Get Debt Relief
By: Bryan Burbank | 25/07/2008
A Government Grant can help you get out of debt and put you on the road to financial freedom. Now more than ever we are finding it hard to make our credit card payments and with gas approaching $5.00 a gallon we are using and racking up more credit card debt than ever. It is best if you can eliminate the debt you have so that you do not have to have the extra stress of worrying about making your monthly payments.
Find yourself Debt Relief With a Government Grant
By: Bryan Burbank | 25/07/2008
Getting a Government Grant can be a great way to eliminate debt and get you on the road to financial freedom. Many people are looking for a way to get out from under the problem with having too much debt and not being able to pay the minimum monthly payments. The Government offers many types of grant programs to help people in different financial situations and it is important to have the right information so that you know where to apply and how to obtain a Government Grant to help you get debt
Credit Counseling in Pennsylvania
By: Ronnica Rothe | 25/07/2008
Much like the rest of the country, Pennsylvania residents are struggling with their credit card debt. As if mounting debt were not enough, gas and food prices have gone up exceeding inflation. This means that more Pennsylvanians are relying on credit cards to make ends me than ever.
Wipe Out Debt From Credit Cards
By: Geoff Hibbert | 25/07/2008
A guide to the most economically effective way to pay of card debts.
Helpful Tips for Eliminating Debt
By: Christina Costa | 24/07/2008
Getting out of debt can seem tricky, but with a few helpful tips you can be on your way. Everyone likes to spend but when it comes time to pay back, they are not that enthusiastic. Get started now at eliminating your debt, before it gets any worse!
More from Alan Lim
Home Refinancing - Choosing a Lender
By: Alan Lim | 25/07/2008 | Loans
The selection of a lender is an important factor in ensuring that your home refinancing loan goes through smoothly. Here are some tips to help you make the best choice.
Home Mortgage Refinancing - Why Should I Refinance?
By: Alan Lim | 25/07/2008 | Mortgage
Here are a few informational hints that may help you determine if home mortgage refinancing is the route for you to follow. A discussion of why and when refinancing is helpful follows.
Home Mortgage Refinance - Top Tips in Getting the Best Rates
By: Alan Lim | 25/07/2008 | Loans
Here's how to find the best possible interest rates on the home mortgage refinance you may be considering. Whether you are financially solvent or pinched in your pocketbook, you probably want to save money on interest rates.
Home Mortgage Loan - Tips for Reviewing Loans
By: Alan Lim | 25/07/2008 | Mortgage
Once your have begun the process of obtaining a home mortgage loan, here are some essential things to watch or watch out for in reviewing loan proposals and documents.
Free Online Dating - Tops Secrets About the Do's and Dont's
By: Alan Lim | 22/07/2008 | Dating
Choosing the web site where you get free online dating opportunities opens up a whole new world of interest. There are some common sense do's and don'ts that should be considered before finalizing on the web site. Consider the site itself and look for the fine print. You should also make sure you are honest and straightforward about yourself.
Free on Line Dating - Who Should Try It?
By: Alan Lim | 22/07/2008 | Dating
You don't need a particular reason to try free online dating. You just need a desire to do something to ramp up your social life. Some people though are more likely to enjoy all the benefits of the online dating opportunities from a dating web site than others. Maybe some of these factors resonate with you.
Free Internet Dating - What are the Motivations
By: Alan Lim | 22/07/2008 | Dating
Those individuals exploring available free internet dating sites can be motivated by any of several factors. If you are an individual who is exploring dating sites, you may desire a long term permanent relationship, you may want to widen your circle of friends, or you may just be practicing your social skills.
Free Dating Websites - Who Pays for the Web Sites Even if Its Free
By: Alan Lim | 22/07/2008 | Dating
There are always costs associated with establishing and maintaining websites and you may have wondered how the free dating websites are supported. They may have several ways of becoming funded, some more effective than others. In order to maintain a zero cost for members, here are some of the ways that funds are accumulated to pay for the site.
Finance 
| Posted: 17-05-2008 | Comments: 
