When many financial institutions are telling you that debt consolidation loan is a good financial solution for you who are knee deep in debt, you are reminded not to trust this statement 100%.
There are some truths you need to know before making your decision.
First of all, you need to understand how this loan works.
With this specific loan, you are simply transferring your debt from one entity to another entity.
In other words, you are combining your multiple debts into one lump sum and you are not actually paying off all your debt.
By obtaining the loan, your debt is still there and it will not magically vanish into the air.
No doubt, you may save some cost because you are switching the debts from higher interest to one loan with lower interest rate.
You still need to put in hard effort to pay off your debt quickly.
The advantage is that you are able to manage your debt in a simpler manner.
If you don't own any property or fixed assets, getting an unsecured loan is possible.
But you need to bear in mind that you won't be able to get a large amount of loan to pay off ALL your debts.
The lenders will definitely set a limit on your loan amount as you don't have any property to secure your loan.
Again, you are reminded that lenders are not risk takers.
They will not approve your loan without evaluating your credit score.
You have to be prepared that you won't be enjoying low interest rate if your current credit rating is low.
You may still be offered by the lenders to get the loan but you will definitely pay the interest through the nose.
By knowing the truths above, you can then have a clearer direction when you are doing your financial planning.