When to try a debt consolidation loan?
Plenty of people have heard of debt consolidation loans, but not a lot of them know a lot about it. One of the most frequent questions that is asked by people who are considering this method of getting out of debt is how much debt do they need to have in order to qualify.
The Truth About Debt Consolidation Loans
The truth is that there is really no “right” amount of debt that a person needs; there are a wide variety of consolidation loans on the market and each one is geared towards a different group of people. It is important, however, to make sure that you pick the consolidation loan that is right for your amount of debt.
People with relatively small amounts of debt, that is, debt that they could pay off within three years or less, tend to do better with a consolidation loan that gives them a low interest rate and allows them to pay off their debt as quickly possible. Since the goal for these people is to get out of debt fast and they don’t need any extra money to pay other bills, it only makes sense to look for a consolidation loan with as low of an interest rate as they can find.
People with debts that are too high for them to make the minimum payments every month will want to look for a debt consolidation loan that allows them to pay less every month. Typically this is done in several ways.
A debt consolidation loan that offers a lower interest rate allows the consumer to pay less of their money towards interest every month. This means a lower monthly payment, since less money will be spent on interest.
Longer Payment Term
A debt consolidation loan that offers more time to pay back the money that is owed allows the consumer to stretch out payments. Essentially, this makes each payment smaller. For example, a person who owes $1000 could pay $100 a month for ten months, or $50 a month for twenty months.
Of course, the fact that the loan charges interest with each payment means that a consumer can expect to pay a little more in interest for a loan with a longer payment term. For that reason, it’s important to shop around for the right consolidation loan.