Over the past few years, many Americans may have fallen behind on their monthly payments for obligations such as credit cards, mortgages, or loans for their car or education. And that debt can grow higher with each passing month until it begins to seem impossible to pay off. Fortunately for consumers, credit consolidation is a viable solution, especially for those who are reaching a breaking point and feel they are close to falling behind.
Consumers that owe money to a number of different lenders may consider consolidating their credit, which lumps the numerous loans they are carryinginto one new loan with one single monthly payment. Doing so can significantly reduce their monthly payments, as the new loan may have a lower interest rate and a longer duration than the individual loans.
Credit consolidation starts with a new loan from a lender that will allow a consumer to pay off all their current balances on a number of accounts, like credit card debt, outstanding auto loans or even unpaid student loans. By paying those accounts off in one lump sum payment, the consumer could potentially save thousands in future interest payments to those lenders and avoid falling behind.
Most credit consolidation loans have a significantly lower annual interest rate because they take many small loans and combine them into one big one, and reduce the risk of default. They can also feature considerably lower monthly payments and save consumers the headache that normally comes with making payments to several lenders every month.
As with any loan, credit consolidation carries risks. While consumers can get low rates by securing their loans against some sort of property, that also carries the obvious risk that they might lose the collateral if they cannot pay their bills. Property loans have become more challenging to qualify for in recent years, as lending standards have significantly tightened.
There are many different types of credit consolidation loans, depending upon the type of debt that is being consolidated. Individuals with debt related to their college education can often combine one or all of their student loans into a single loan. As rates on such loans tend to fluctuate, having good timing and a variety of choices can be very important to maximizing savings.
For consolidation involving auto loans, consumers can often get new interest rates or better terms by seeking out the best offer. In addition, consumers may find that they can get even better rates by choosing to secure their consolidation loan against the vehicle that it was used to pay off. Collateralizing the auto reduces the risk to the lender, which is then passed on to the consumer in the way of a more favorable interest rate and payment.
The benefits of credit consolidation are obvious for those that can qualify for a good consolidation loan. By reducing the interest rates and monthly payments on a handful of smaller loans, consumer can better manage their finances and avoid any tight financial spots.