Benefits, Risks, and Alternatives that Single Mothers Need to Know About Debt Consolidation Loans

Clearly, a single mother faces more troubles in comparison to the other women, because they are responsible for the entire family as well as the future of their kids. A number of single mothers find it extremely difficult to manage their finances and they end up taking loans. It has also been observed that a number of loans cannot be paid on time because the money a single mother may earn is not enough to clear her debts. If you start feeling that it is not easy for you to clear all the debts completely yourself, it is best to go for the debt consolidation loans.

Definition of the debt consolidation loans

A debt consolidation loan is responsible for paying all the existing debts and combining all the balances into one monthly bill, along with a completely new rate of interest. The main objective is reducing the total bills, which you have to keep a proper track of, and it also reduces the interest rate on all the outstanding obligations. Debt consolidation loans can either be secured, which mean that they are guaranteed to repay, or the secured loans, which mean that they are tied to the physical assets, like your car or your home. Secured loans can also be associated with retirement accounts, life insurance policies, or any other personal possession. Unsecured loans are applicable for the unsecured debts like the medical bills and the credit cards.

A proceed from a secured loan is applicable for a broad range of the obligations that include auto loans as well as mortgages. You also need to understand that the debt consolidation loans that are secured have a low rate of interest in comparison to the unsecured debt consolidation loans. It is suggested that as a single mother you go for the unsecured loans despite a higher rate of interest, because in case of secured loans, if you are not able to pay the entire money, you are going to end up losing your house or other personal assets, which is something that you definitely do not want. Consumers who use the debt consolidation loans for paying the credit card debts pay an interest of 20% on the cards, according to www.incharge.org.

Debt consolidation loans are offered by different kind of financial institutions like the banks, credit unions, specialized lenders, peer-to-peer lending services, etc.

Specialized lenders

A number of providers of debt consolidation loans are the specialized lenders or the finance companies, which do not agree to accept the deposits like credit unions or traditional banks. They are responsible for paying off directly to the old creditors and sending a monthly bill to you for the total balance or they can either send a check regarding the total amount.

The credit requirements of a finance company are considered to be less stringent in comparison to the traditional banks. However, you need to understand that the rates can be extremely high for the borrowers with a middling credit. The loan limits can vary from one company to another but the common range is $25,000 to $35,000. The limits can trend upwards on basis of the increasing competition.

Banks

A number of reputed national and community banks are known to offer both secured as well as unsecured debt consolidation loan to the borrowers who have a good credit. The rates can vary widely on basis of the creditworthiness of the borrower as well as the prevailing rates, but they are normally 8% to 10% on the prime rate, especially for the people who have the lowest credit score that can be accepted.

The bank loans normally require the entire payment within a period of 60 months. The borrowing limits tend to vary between $25,000 and less at the conservative banks to 100,000 dollars or more at the generous institutions. A large loan is normally reserved for the borrowers that have excellent credit reports.

Credit unions

A credit union is also responsible for offering the debt consolidation loans that have the terms of 12 months or 60 months, at a discounted rate or a fixed rate for the members.

Peer-to-peer lending services

A peer-to-peer lending service is also responsible for facilitating the unsecured loans and the interest rate can range from 6% to 8% to almost 30%. This is completely dependent on the credit score of a particular person. As a single mother, you can get the loan term of either 24 months or 60 months, and you need to know that a large amount is going to receive the longest possible term. If you have a fair credit, peer-to-peer loans are considered to be the best quality options, or you may feel pressurized for turning to the unwanted payday loans. You can click here to know more about debt relief programs.

The alternatives that you can consider

Before you are considering a particular debt consolidation loan, you have to investigate all the alternatives before taking a final call.

Credit counseling

Credit counseling agencies normally receive funding from the bank as well as the other financial organizations, and they are responsible for providing either free or the low-cost financial services to the consumers. A number of agencies also offer the debt management plans, which are nothing but the arrangements between a creditor and a borrower, which can help in reducing the rates of interest, waive the penalty fee, and consolidate all the balances into one bill.

Debt settlement program

A debt settlement program is almost similar to a debt management plan and it is prepared by intermediary organizations, which are responsible for negotiating the balance reduction with the creditors. The entire process can take a lot of time up to almost 4 years, and during this period, you have to keep making monthly deposits in your escrow account for preparing to pay a lump sum amount for all the participating debts. This process can have a dramatic impact on the credit score and it is going to appear in the credit report and remains for a period of 7 years.

Conclusion

Considering the income that you have and all the other duties that you have to fulfill in the future for your kid as well as yourself; it is crucial that you consider debt consolidation or any other debt relief program that suits you the best.