How to Choose a Credit Consolidation Loan For Paying Off Credit Card Debt

A credit Consolidation loan is usually taken out to pay off debts with a higher rate of interest such as balance on a revolving line of credit such as a credit card.  While it is true that taking out a credit Consolidation loans can ease the burden of your monthly payments it is important to shop around in order to find the best interest rates, amount and terms of repayment.

The primary factor that is considered was taking any kind of a loan is the interest-rate.  The interest rate determines the amount of extra money that you will be required to pay against the principal amount that you borrow.  The lower the rate of interest the more you stand to benefit from taking out a credit Consolidation loan. A credit Consolidation loan typically involves using an asset such as property automobile as a collateral as security.  Once again your credit history will also come into focus and play a role into determining the interest-rate that a lender is willing to offer you.  If you are looking for a credit Consolidation loan in order to recover from a serious debt problem than the odds are that your credit history has already been marred by a negative items such as late or nonpayments on credit accounts.  If this is the case then using a collateral may be your only option for getting a loan on a lower rate of interest.

It should also be noted that the credit Consolidation loan is most often used to pay off unsecured debt like credit card and personal loans.  You may find yourself hard pressed to convince a lender to extend a credit Consolidation loans to pay off Secured debt such as mortgage and automobile loan that is tied to an asset.

There is a fine line between credit Consolidation and debt management.  The biggest difference is that under the credit Consolidation loan you are given a completely new loan that will pay off all the debts that have been consolidated under the debt consolidation plan immediately.  After that you are left with the single credit Consolidation loan to pay off.  Under a debt management plan a credit counseling service will renegotiate the terms of payment and interest with your current creditors allowing you to make at lower single payment to them every month which they used to reimburse the lenders.  Under debt management plan you are not extended a completely new loan and continue to pay your existing lenders with the expectation of getting out of debt in the next two to five years.

There are two ways in which a credit Consolidation loan lowers your monthly payment.  One is by offering you a loan at a lower rate of interest which we have already mentioned.  The second is by giving you a credit Consolidation loan with a longer tenure.  Extending the repayment period automatically lowers the monthly payments.  Although you pay be paying a larger sum of money in the long run the advantage of having to make lower payments in the short term may help you stay afloat and get your finances back on track.  Once you are in a better shape financially you can always take a more aggressive approach to paying off the credit Consolidation loan.

You need to be very careful while choosing a debt consolidation service.  Perhaps one of the best way in order to get a credit Consolidation loan is to deal with your own bank or any other legitimate financial institution that has an accredited and well-known debt consolidation service.  Learn to be extra suspicious of offers that seem too good to be true with credentials that are doubtful.

You also need to consider your options.  As mentioned before there is a fine line between debt consolidation plan and debt management plan.  You may manage to pay off all your lenders without taking out a new loan by having a legitimate credit counselling service renegotiating repayment terms under a debt management plan, or by negotiating with your lenders yourself, although the lenders are usually more susceptible to renegotiating with consumers who have enrolled themselves in a debt management plan with an accredited credit counselling service.

The idea behind taking out a credit Consolidation loan is to lower your monthly burden so you can get your financial affairs back on track.  For people suffering from serious debt problem it may be the only option to stay afloat and avoid other dire methods such as filing for bankruptcy.  Make sure that your credit Consolidation plan does indeed help lessen your monthly burden allowing you to get back on your feet.