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Search Google on the phrase “loan consolidation companies” and you’ll get a page with 13 or more results, most of which will be companies ready and anxious to help you with loan – or debt – consolidation.
One listing I found promises to help you resolve your debt in 24 to 48 months. Another has a form you can fill in to find a loan consolidation company near you. And another ranks the top student loan consolidation companies. There are even several listings titled the “truth about debt consolidation” and the” dangers of debt consolidation”.
If you take the time to read all of this information, it's easy to end up feeling dazed and confused. What is the truth about loan consolidation companies? The truth is that a reputable one can provide you with a debt consolidation loan at a better interest rate and one that you can probably pay off quicker then you would be able to pay off all that credit card debt.
The pros and cons of a debt consolidation loan
As noted above, the biggest pro of a debt consolidation loan is that you should be able to get one with a lower interest rate than your credit cards. You will probably also spread out your payments over a longer period of time. In fact, most debt consolidation loans will allow you to take 5, 7 or even 10 years to pay them off. Of course, this is both good and bad news. The good news is that you will have lower monthly payments. The bad news is that it can feel like it's taking you forever to pay off that loan.
Two types of debt consolidation loans
The two types of debt consolidation loans are called secured and unsecured. The difference is that a secured loan means you need to put up some asset as collateral, which might be your house. In comparison, with an unsecured loan, you don’t have to have an asset as collateral.
A secured loan will most likely come with a much better interest rate because the lender is not taking as much risk. For example, you might be able to get a home equity line of credit or a second mortgage at 5% or less. On the other hand, an unsecured loan could come with a much higher interest rate and might include some very steep fees. After all, the lender has to do something in order to offset the fact that it's taking much more risk.
Some loan consolidation companies will offer a very low interest rate for the first few months as what is called a “promotional rate.” If you do decide to take out one of these loans, you need to make sure that the interest rate you're being offered is not a promotional rate but one that remains the same for the life of the loan.
One big problem with a debt consolidation loan is that it does nothing to reduce your debt. It simply moves your debt from one lender or lenders to another. This is why many families have turned to debt relief or debt settlement. In this case, the debt relief company negotiates with your credit card providers to reduce your debt. The company National Debt Relief has a track record of being able to negotiate debt relief of 50 cents on the dollar or better. If you owed a total of $18,000, National Debt Relief might be able to negotiate that down to $9000. When you cut your debt in half, you cut your payments accordingly. In fact, National Debt Relief is usually able to negotiate a settlement plan that will get you completely out of debt in 24 to 48 months.
If this seems like a good idea to you, be sure to go to its website, , and fill out the debt analysis form you will find there. National Debt Relief charges no upfront fees so you literally have nothing to lose except that terrible feeling that you are about to be crushed by your credit card debt. Loan consolidation companies can be a good thing but debt relief is better.