Consumers who are struggling to pay off their credit card debt may already know that there is an entire financial industry devoted to debt relief and reduction. That’s a good thing since it means that debtors have plenty of options at their disposal. One of the most popular of these options is taking out a debt consolidation loan, but like all solutions, this answer comes with both its advantages and disadvantages.
Not sure if a debt consolidation loan is the right solution, but don’t want to resort to filing for bankruptcy? Read on to find out about a few of the pros and cons and get a better idea of what other options are available.
Debt consolidation loans make it easier for consumers to keep track of their debts by consolidating them into one monthly payment. These loans are available to those with poor credit and often offer lower interest rates than the original lenders. Since it’s easy to apply for debt consolidation loans, this option is available to the vast majority of consumers, which helps to explain why it is so popular.
Unfortunately, while debt consolidation loans are available even to consumers with poor credit, those with lower credit scores often wind up paying substantially more interest than prime borrowers. Sub-prime borrowers can expect to pay as much as 25% interest on their loans, which can wind up negating any potential savings they could enjoy. Many lenders also require collateral on debt consolidation loans and failing to pay them off on time can damage credit scores and wind up getting debtors’ assets seized.
Many readers likely haven’t realized this, since it’s not a well-publicized fact, but debtors can sometimes negotiate lower interest rates from their credit card companies themselves than they could taking out a new loan. The credit card programs available to those suffering from true financial hardship often have better terms and they don’t require collateral. Readers who have suffered unexpected medical emergencies or have become temporarily unemployed and are struggling to keep up with payments should always try negotiating with their lenders directly prior to looking into other options.