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Debt Consolidation Loans: What to Consider When Weighing Your Options

When faced with mounting bills, many consumers explore debt consolidation loans as a way to get their finances back on track as quickly as possible. And while a debt consolidation loan may be a great solution for you, it's important to weigh your options to determine the best plan for you and your specific financial situation.

What is a debt consolidation loan?

A debt consolidation loan typically allows you to pay off all your existing bills at once, while making a single, monthly payment to a new lender. With this option, you'll enter into a loan agreement with the new lender, who pays off your creditors. This allows you to consolidate all of your debt into one new loan - meaning you'll repay the new lender for the amount borrowed to pay off your other bills.

Be sure to do your research to determine if a debt consolidation loan is right for you. While it's a quick way to get out of debt, there are many factors to consider - including interest rate, terms and fees.

Interest rates on a debt consolidation loan vary and may be higher than what you're currently paying to each of your existing creditors, and the repayment terms of the new loan may mean you'll be making more total payments to clear your debt. In addition, the new lender may assess additional fees and may require collateral on the new loan - something you own such as a car or home - to encourage repayment. If collateral is required, the lender has a right to seize these items if you default (neglect to make consistent payments) on the new loan.

Even with potentially higher interest rates, longer repayment terms and additional fees, for many consumers a debt consolidation loan still makes perfect sense, as it helps them get out of debt quickly and easily. Not to mention, they now owe just one payment every month, rather than having to remember to pay multiple bills.

The CareOneSM Difference: Offering Alternatives to Debt Consolidation Loans

CareOneSM providers take a consumer-focused approach to debt relief. Because we're not a lender, our goal is to help you become and stay debt-free. We work for you, the consumer, by providing alternatives to debt consolidation loans. With us, you'll get the support you need to pay off your bills and the knowledge you need to manage your finances for the long term.

We offer two terrific alternatives to debt consolidation loans. Our Debt Management Plan (DMP) and Debt Settlement Plan (DSP) may be able to help you:

  • pay significantly less than if you continued to make monthly payments to your creditors
  • pay off your debt faster than if you continued to make monthly minimum payments to your creditors
  • make one, simple payment per month
  • build strong money management skills

There are important differences between the DMP and DSP that you should understand in order to make an informed decision. Let's take a look at each.

A CareOne Debt Management Plan is designed to help you repay your debts in full in five years or less. By consolidating your debts into one, simple monthly payment, the DMP may offer significant savings in both interest and repayment terms.

With a Debt Settlement Plan, we will work with you and your creditors to negotiate to pay back a portion of your unsecured debt. Rather than make monthly payments to your creditors, you'll instead make affordable monthly deposits into a trust account. This type of debt relief plan will have a negative impact on your credit, so it's important to discuss this and all options with a qualified representative. Read more >>

So which debt-relief plan is right for you?

As you can see, both the DMP and DSP can help you get out of debt in a reasonable amount of time, but each has its own benefits and risks. Be sure to weigh the benefits of these versus a debt consolidation loan to choose the best solution for your financial needs. Determining which plan is right for you depends on your financial situation, including the amount and type of debt(s) you have, your income, and your ability to make consistent, on-time payments.

Still need help deciding whether a debt consolidation loan or debt relief plan is right for you? Visit the CareOne Help Center or contact us via phone or email.

If you liked this you may also like:

  • You Asked, We Answered: The Truth About Debt Consolidation Companies

    Regardless of whether you binge on shopping or simply use credit cards to make ends meet, there may come a time when you need a financial intervention to help organize your bills, repay your debt, and improve your finances. For some, debt consolidation is the answer. But before you jump in head first, it's time for a course in Debt Consolidation 101.

  • Understanding Your Debt-To-Income Ratio

    Your Debt-to-Income Ratio is a crucial personal financial health indicator. Find out how to calculate it and what it means to you.

  • Debt Relief: Myth & Reality

    Debt relief comes in many forms- credit counseling, debt consolidation loans, settlement and even bankruptcy. Each solution will help you get out of debt, but the long term impacts and fees can vary greatly. Understand the myth and reality behind your debt relief options.

  • Is Debt Consolidation A Good Idea?

    If you have lots of debt, consolidation may save you time and money. Depending on your financial situation, there may be a solution that's right for you.

  • Do You Need Debt Relief?

    Feeling overwhelmed by your debts? Having trouble making ends meet? Unable to get ahead of your credit card debts? A Debt Relief plan may be your solution to getting control of your finances.

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