Because of the current state of the economy and the shadowy forecast for the future, more and more people are becoming interested in debt consolidation. It can be hard to get good information, however, because of the large amount of both valid and false information in magazines and on the internet. In some cases, even recognized financial publications contain misleading information about debt consolidation. Some of the ungrounded statements come from peoples who do not realize that they are spreading falsehoods, whereas in some cases people with questionable business practices have their own motivations for spreading false information.
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There are many motives for presenting falsehoods about consolidation loans, but many of them boil down to money. Unscrupulous lenders attempt to convince people not to pursue consolidation loans in order to get them to accept their own shady financial advice. Either that, or they present terms that are too good to be true. In the case of people who offer deals that seem too good to be true, their method is to offer, for example, a fantastic interest rate. But there will be a mountain of fine print, and at some point during the repayment period the interest rate will skyrocket. The lender, however, will simply say that it was in the loan contract. This forces the borrower to pay up or possibly find himself being sued.
The Real Advantages and Disadvantages of a Debt Consolidation Loan
Regardless of unscrupulous individuals, if a debt consolidation loan is obtained through a trustworthy and ethical lending agency, people with bad credit can gain real financial benefit. The pros definitely outnumber the cons. There are, however, some disadvantages to consider.
One of the main advantages of obtaining a debt consolidation loan is the ability to pay off original debts, which can help a credit score in the long run. In addition, instead of missing some payments every month and constantly trying to catch up, a person who takes out a loan to pay off bills will be making one simple monthly payment to one organization. Interest rates for a loan of this kind are actually very reasonable and often allow for complete repayment of the loan in just a few years. If debt settlement takes place, then the principle amount of the original loans can quite often be reduced by fifty percent or more. All of these facts, plus no more daily harassment from creditors, make debt consolidation an attractive and valid option for people with unpaid bills.
There are two negative results of taking out a loan to pay bills that one should keep in mind. The person who takes this loan may find that their credit score has taken a small hit as a result of closing multiple accounts at the same time. But this can easily be repaired after the loan has been repaid. Besides, for someone who already has bad credit, a small decrease in his credit score isn't going to hurt. The other negative result takes place only if a borrower has dealt with a shady lender, in which case variable interest rates may be extremely high.
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