There was a popular song back in the 1970s titled “Waist Deep in the Big Muddy.” It had to do with America’s participation in the Vietnam war, but it could just as well describe how you feel about being in debt.
Being waist deep in debt can have a negative effect on your finances and your entire life. It can cause you to have problems with your family members and even your health. The stress of dealing with those debts can cause problems like migraines, fibromyalgia, and anxiety. For that matter, a 2013 study from Northwestern University revealed that, “Adults ages 24 to 32 who had high debt-to-assets ratios had significantly higher blood pressure, a risk factor for heart disease and stroke.”
A 2014 Rutgers University study of adults age 51 and older found they were more likely to report depressive symptoms when they had a high amount of unsecured debt. The Northwestern University study also found that your immune system can actually be suppressed by debt as it is a huge source of chronic stress.
Many people have turned to debt consolidation to get their debts under control, and to eliminate the stress related to dealing with them.
One of the best ways to consolidate debts is with a debt consolidation loan.
The two types of debt consolidation loans
The two types are an unsecured personal loan, and a secured loan such as a homeowner’s equity line of credit (HELOC) or a home equity loan. Both of these types of loans typically have lower interest rates than a personal loan as your home serves as collateral. Of course, this puts your house at risk because if you were to default on the loan it could be foreclosed and you would lose your home.
Just one payment
A debt consolidation loan can be appealing if you have multiple unsecured debts including credit card debts, department store credit card debts, personal loans, and medical debts. It can be hard to keep track of all those different debts with all their due dates, and their different minimum payments. If you have four credit card debts and a personal line of credit, you could easily have payments due on five different days of the month with five different minimum payments.
You might have had late payments just because you lost track of their due dates. If, so you’re not alone. Credit Cards dot com has reported that 34 million American adults admit they’ve had late payments, and about 18 million say they’ve missed payments.
You eliminate this problem when you pay off all your unsecured debts with a debt consolidation loan because you’d then only have one payment to make each month and one due date to remember. Wouldn’t this simplify your financial life considerably?
A fixed term
The second reason a debt consolidation loan can be appealing is because it has a fixed term or fixed length. Depending on the type of your consolidation loan, the term could be three years or five years or even longer. This is beneficial because you’d know exactly when you’ll have the loan paid off.
In comparison, credit card debts and department store card debts are basically open-ended. Here’s an example of how bad this can be. Let’s suppose you owe $5000 on a credit card at 17% interest and make just the minimum payment of $121 each month. It would take you five years and three months to pay off that debt — assuming you don’t charge anything else on the card.
In addition, with a consolidation loan you can also look forward to lower monthly payments and a lower interest rate than the average of the interest rates you’re currently paying. Today, interest rates on personal loans are at almost an all-time low. If you have really good credit you might be able to get a loan for as much as $35,000 with an interest rate as low as 4.29% APR. Of course, if your credit score is less than 750, you’ll be charged a higher interest rate. However, it should still be less than the average of the interest rates you’re currently paying.
Why a debt consolidation loan might not be appealing
Unfortunately, there are some downsides to a debt consolidation loan. For one thing, it does nothing to reduce your debt. All you’re doing is moving it from one set of lenders to a new one.
Second, you may end up paying more interest over the life of the loan, especially if you get either a HELOC, or home equity loan, where the term could be anywhere from 10 to 30 years.
Finally, with a debt consolidation loan comes the possibility of adding on more debt. The irony of one of these loans is that the low monthly payments make repaying the loan so easy that, if you fail to change your lifestyle or your money management habits, you might end up taking on new debt.
If you do feel a debt consolidation loan would be your best path to debt relief, here’s a video that explains how to get one of these loans.