60 Second Guide to Debt Consolidation Loans

[Aug 17, 2009.]

 

Borrowers who are juggling multiple payments on loans and/or credit cards may find some relief through debt consolidation. Getting a debt consolidation loan doesn't mean a borrower doesn't have to pay off his debts. It can, however, allow him to lower the overall interest rate and monthly payments, making it easier to pay off more than one debt.

Loan Interest Rates May Be Higher Than Advertised

Although there are advertisements everywhere for low-interest debt consolidation loans, not everyone qualifies for the best rates. People who are looking to consolidate debt may have already missed some payments or have bad credit. So lenders may see them as a high risk and offer them higher interest rates than they expect. That's why it's important to do the math on any loan offers to make sure there will be a real savings.

Deal with Reputable Loan Firms

There are all kinds of folks offering to help consumers pay off debt with consolidation loans. But not all these firms have borrowers' best interests in mind. To avoid getting ripped off, potential borrowers should check out the reputation of any loan company they are talking with. The details of any loan offers or payment plans should be put in writing. People also need to check out loan companies with their state attorney general's office and the Better Business Bureau to make sure there are no complaints.

Borrowers Should Ask About All Fees

Before signing up for any kind of loan it's important to become familiar with any fees. Some debt consolidation loan companies offer to help people combine their debts but charge for this service. The fee is usually a percentage of the monthly payment on the loan. Borrowers must ask whether or not paying the additional fee is worth it, or whether or not they can set up a debt consolidation plan on their own.

Do-It-Yourself Debt Consolidation

It's not that difficult to set up plan to pay off debt without the help of a debt consolidation firm. A do-it-yourself plan involves:

1. Totaling up all debts to see how much is owed
2. Looking for ways to cut expenses so there is more money to put towards debt
3. Negotiating lower interest rates with creditors
4. Escalating monthly payments on at least one debt by paying more than the monthly minimum
5. Rolling over monthly payments for paid off loans into other debt payments

Using a personal loan or home equity loan to consolidate debt at a lower interest rate can also work for some people. Borrowers can find personal loan offers here.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.