NDSU Extension Service - Ramsey County


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Repayment Strategies

Repayment Strategies

            When debt overwhelms, consumer sometimes look at consolidation loans as one way to repay that debt.  If entered into correctly, a consolidation loan may be a reasonable and affordable way to repay debt.  However, a poorly chosen one can put you deeper in debt

            In consolidation loans, a new loan is taken out to pay all other debts.  The payment to the new consolidation loan often is lower than what was previous paid to all the other debts so your budget has more flexibility.  Also the payment is made to just one lender instead of many so making payments on time and avoiding late fees is easier to manage.

             In order to reduce your monthly payment consolidation loans usually extend the repayment time and the amount paid in interest and finance charges.  This in turn increases the total amount you need to pay back.  However, sometimes consumers can refinance consolidation loans at a lower interest rate so the total amount repaid may not increase dramatically.

            Some points of caution with consolidation loans – If you consolidate your debts be careful not to use the “freed up” money to buy something else on credit or you will be compounding your problems.

            It is not usually a good idea to use a home equity loan for debt consolidation.  When you use your home as security for a consolidation loan, you are at risk of losing your home if you get behind on repayments.

            Look at the source of the consolidation loan – what is the history of the lender?  How long have they been offering consolidation loans?   Where is the lender located – in state? Out of state?  Where do they advertise?  Internet only?  How can you contact them?  Do they have an office?  Only a web site?  What is their track record with the Better Business Bureau?

            The ability to obtain a consolidation loan depends on –

            - Your credit history

            -The sources and amount of your income

            - The size of your debt and the amount of money required to pay the debt.


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