Applying For A Debt Consolidation Loan

2007-03-08 10:33:40

( Financial )



A debt consolidation loan involves combining all of your loans from credit cards and other collection agencies, as well as negotiating for a lower monthly repayment scheme. A debt consolidation loan is also known as a low interest consolidation loan as the monthly interest in this type of loan is reduced after the debt repayment negotiation. There are times when creditors even waive the interest charges in exchange of regular monthly payments. It is better to be paid on a regular basis with almost no interest, than to be not be paid at all. Unlike other repayment schemes where the person’s credit report is affected, a debt consolidation service acts in the opposite way: because your payments are regular and prompt, you credit report is improved as the debt amount is reduced each month. A debt consolidation loan also relieves the stress of the person owing the money because all of the payment reminders from your creditors will stop.

A person only needs to pay one lump sum amount to a debt consolidation service, and the funds are distributed by them to all your creditors each month.

A debt consolidation loan should be considered before filing for bankruptcy, as credit reports usually carry your bankruptcy record for many years. It affects your future loan or credit applications, and therefore obtaining future approval for loans will become difficult.

You should still put careful thought into a debt consolidation plan, if the purpose for your loan is to pay the existing balances of your credit cards. If your credit cards are still active at the time when payments are made, you may just get yourself into further financial trouble. Clearing the outstanding balance of your card will tempt you from further using your card, and the cycle of your financial troubles could start all over again. It is better to get your cards cancelled first and then apply for a debt consolidation loan: this way you are permanently getting rid of your debts while making an improvement on your credit score.

A debt consolidation calculator, which may be found on the Internet, can assist you in calculating how much monthly payments you will make in proportion to your consolidated loan amount before you decide to approach a debt consolidation service.

You can apply for a debt consolidation loan with any credit union or bank where you’ve had a good financial relationship with, or a debt consolidation company. You should note that service and administrative fees for the debt consolidation service are usually charged on the first installment payment of your consolidated loan.


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