Some Debt Consolidation Terms You Need to Know

Applying for a debt consolidation program can make paying your monthly payment very convenient. By consolidating your multiple debts into one loan, you can have an affordable monthly payment with a low interest rate. This way, you can save a little from your income that you can invest in money-generating sources like stocks, a new small business, CFD trading, or get an insurance with mutual funds. Individuals who have several debts often acquire a debt consolidation loan to pay off their outstanding balance easily. To understand more about debt consolidation, here are some terms that you need to know. 

Debt Consolidation

This term means that you can actually combine your several debts into a single mortgage. When you do this, you can have a new loan with a lower interest rate. Since this kind of loan has an extended term, your monthly payment is much affordable and lower too.

Balance Transfer

A balance transfer is the method of moving your outstanding balance from one credit card account to another. Usually, people who consider a balance transfer has to do it using forms or checks. You can do a balance transfer to have a credit card account, which has a more affordable interest rate that what you currently own.

Amortization

This is your monthly payment to gradually pay off the principal and interest rate of your loan. If you consolidate your several loans, you do not have to pay multiple amortizations. Your debt consolidation program helps you to amortize your numerous debts by only making a single payment every month.

Fixed Interest Rate

It is an interest rate that does not vary in the entire loan term. If your loan is said to have a fixed interest rate, you have to pay for the same amount of monthly payment for the entire life of your loan. A debt consolidation program has a fixed rate that is why it is makes it easy for people to pay for all their debts in a certain amount of time. To learn more about a fixed interest rate, you can ask your lender how this will help you with your payment plans. You can also ask your potential lender if they allow to lock interest rates as well so that you can be sure that these will not affect your payment plan. Savings from paying your loan because of a good and fixed interest rate will allow you to invest in CFD trading, mutual funds, and bonds, to help you earn extra money as you pay for your debt consolidation loan. 

Secured Loan

This kind of loan is used by a borrower who pledges an asset that can be sold if they fail to pay the loan they applied for. The most common property used to secure a loan is a home. Secured loans have lower interest rates than unsecured loans because lenders have lower risks when they grant their borrowers with this loan type. 

Unsecured Loan

A borrower of an unsecured loan does not need any collateral to acquire a loan. There is no valuable item or asset at stake when the borrower fails to repay their loan. Since unsecured loans are very risky loans, they commonly have high interest rates and monthly payments. If you are considering debt consolidation loan, an unsecured loan should be last on your list since you want to avoid high interest rates.