Is consolidating loans a good idea
Creditors are willing to do this for several reasons – one of them being that it maximizes the likelihood of collecting from a debtor.These loans are usually offered by financial institutions, such as banks and credit unions; there are also specialized debt-consolidation service companies.If you take a loan with a three-year term, you know it will be paid off in three years — assuming you make your payments on time and manage your spending.Conversely, making minimum payments on credit cards could mean months or years before they’re paid off, all while accruing more interest than the initial principal.Home equity loans or home equity lines of credit are another form of consolidation sought by some people, as the interest on this type of loan is deductible for borrowers taxpayers who itemize their deductions.There are also several consolidation options available from the federal government for those with student loans.If your consolidation loan is secured with an asset, however, you may qualify for a tax deduction.
You always make your payments on time, so your credit is good.
These organizations do not make actual loans; instead, they try to renegotiate the borrower’s current debts with creditors.) Freeman says that debt consolidation loans are most helpful for those who have multiple debts, owe ,000 or more, are receiving frequent calls or letters from collection agencies, have accounts with high interest rates or monthly payments, are having difficulty making payments or are unable to negotiate lower interest rates on loans.
Once in place, a debt consolidation plan will stop the collection agencies from calling (assuming the loans they're calling about have been paid off). The Internal Revenue Service (IRS) does not allow you to deduct interest on any unsecured debt consolidation loans.
Damage to your credit is severe, and the process can take years.
Bankruptcy is typically a faster, cheaper option than a debt settlement plan.