Debt consolidation loans are becoming increasingly common, a sad reality of our society is that many people spend well beyond their means, relying upon credit cards and credit to purchase goods that they otherwise could not afford and then end up racking up massive amounts of debt.
The truly tragic thing is that in most cases, such debts started off as relatively small amounts but whether due to wilful ignorance or a genuine inability to pay, the slowly escalate and increase in value as time passes on, sucking the consumer into a vicious cycle.
More credit is taken out to cover debts, this then drives up interest rates charged higher and higher still all the while the debts are mounting up exponentially.
In some cases, people's debts have got so bad, that they end up paying over a significant proportion of their income to simply meet the interest repayments without even making a dent on the original capital sum.
What this means then is that such people would have no opportunity to escape whatsoever save for debt consolidation loans.
In order to try and combat this, debt consolidation loans are intended and designed to give debt ridden consumers an opportunity to combine all of the outstanding payments owed on their unsecured loans and credit card which will include capital sums as well as interest into one lump sum.
This lump sum is then repaid in instalments typically in monthly allotments to the new lender.
If used correctly, debt consolidation loans can be a vital lifeline for those drowning in debt, although like any other loan taken out, you must ensure that you keep up with the repayment scheme or else risk more financial worries.
Debt consolidation loans are a temporary loan which are given to pay off all of the consumers "old" outstanding debts, allowing the consumer to not only be rid of the outstanding loans from a fiscal point of view, but also allow for the riddance of the interest payments as well..
If you had 10 different debts outstanding regardless of the amount, this means you would have had 10 potential lawsuits brought against you for default of payment, and so a debt consolidation loans are an excellent salvo for getting some much needed respite and breathing space.
People often wonder what is the catch with debt consolidation loans and are naturally cynical about using them to any great extent.
A common misconception is that such loans will totally wipe out your credit rating, this is not true.
Whilst you will suffer a slight (and temporary) dent in your credit score, if you are in a position where you need to take out a debt consolidation loan, then you will not need to worry about credit, because you will not be using your credit for a year or so after you take out a debt consolidation loan.
Your primary focus should be settling all your outstanding debts, and in full, this is imperative if you do not want legal action and sanctions imposed.
You will also find yourself unable to take out any more loans if you are currently subject to a debt consolidation program, no creditor will want to take the commercial risk.
Luxuries such as new cars and holidays will have to wait until you have paid off the debt in full.
For such peace of mind, this is a small price to pay.