The concept of loan to pay off debts may turn out to be so strange in our world today because that sounds like borrowing money to pay back the one you have borrowed, so the question still remains that how does this help someone to take a loan just to clear another?
Some persons have postulated that this is only trying to crave a mean to make people more indebted that they assume because of the fact that there will also be other criteria as well as interest attached to this new loan, so a lot of individuals discouraged this aspect of taking a load to clear off the debt when one is owing but the sincere truth of everything is that there is a scenario in which one can be in debt and the person he borrowed the money from is about claiming the debtor’s properties and there is no way in which one can actually get out from the problem and avoid all those unnecessary claims that are when the importance of taking up a loan to clear a debt. One of the ways in which the principle is sighted to work is through the debt consolidation process.
What Is Debt Consolidation?
This involves the process in which one takes a loan to clear off all of his or her debt in an attempt to reduce the incurring of monthly interest rates from the different persons or channels where the debtor collected money from. As an individual or a worker, if you have lots of different debts and you are struggling to keep up with repayments, it is hence advisable that you take up a particular loan that could clear the debt of all the other ones to ensure the reduction of monthly increment of interest rates. There are however two major types of debt consolidation and they are:
Secured Debt Consolidation Loan: this involves a scenario in which the amount you have borrowed is secured against an asset, most times these assets could be your home, cars, electrical gadgets as well as landed properties.
Unsecured Debt Consolidation Loan: this is the opposite of the above, in this aspect of debt consolidation loan; it is not secured against any of your assets. That is, there is no collateral involved in this form of debt consolidation.
Why Should Debt Consolidation Loan Be Considered?
There are virtually numerous systems as well as reasons in which it has to be considered in terms of the Loan consolidation and they are:
- Any savings can be wiped out due to numerous debts involved
- You can afford to keep paying little by little until the loan is cleared up hence it involves just a particular loan
- The interest rate becomes reduced in debt consolidation; it is not like taking multiple loans to start paying multiple interests.
When You Are Not Supposed To Venture Into Loan Consolidation
The following scenarios are not advisable when it comes to loan consolidation due to the fear of running into more severe issue that it was;
- If you can’t afford the new payment loans
- If clearing all your debt with that loan turns out to be impossible
- If it will end up costing you to pay more overall
- If you think sorting out your debts will be perfect rather than creating new ones.
While you venture into this process known as debt consolidation, it is important to note that there are some terms as well as some conditions attached to the fact; and this in most cases is from the policies carried out and stipulated by the company lending the Fund.
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