If you're thinking about taking advantage of one of the many deals you see on TV or in the newspaper every day. Before you take them up on their offer to give you a personal loan that will help you pay off all your debts in one monthly payment, you should sit down and think about it. This is because they are not as easy and quick as they try to make you think.
When we see deals that seem too good to be true, most of us automatically think that there must be a catch. But when it comes to consolidation loans, a lot of people seem to have a blind spot and only look at the loan amount and the monthly payment.
This is the trick that loan companies only want us to see, because putting it this way makes it easy for us to only look at the payments and decide if we can afford to pay back this amount. Because it's less than what we pay toward all of our debts together.
We will see paying back the consolidation loan as making the monthly payments easier. But what we don't realise is that the loan company has another trick up its sleeve, which is the length of time you have to pay back the loan. When you compare the payments to the number of months you have to pay back the loan, many people will think that the loan term is not too bad. But the simple fact is that if you have to pay back the loan over 60 months, it's just a matter of adding up 60 payments.
Putting it in years will change the way you think about it, and you may ask yourself, "Do I really want to still have this debt in 5 years?"
If the answer is still "yes," you might want to look at how much this consolidation loan will cost you over the course of the payments. You might change your mind.
Most of these loans have "variable" interest rates, which means that they can change from one year to the next. They might go down, but it's more likely that they'll go up, so if you get a consolidation loan, make sure that the interest rate is lower than the interest rate on your other debts. Another thing you must do is figure out if you can pay off your other debts in less time than the loan is for. If you can, you should do that.
If you can't, the idea of getting rid of all of your other debts at once is appealing, but there's a warning.
DO NOT use any credit cards or store cards that you have paid off. Doing so will only add to your debt and put you in a deeper financial hole that you may not be able to get out of this time.
