Sometimes our finances can get away from us. Before you know it, you have so many different bills and payments going out of your account that you’re having trouble keeping track of everything. This is where debt consolidation can be a huge benefit to your finances and peace of mind. Not too sure what debt consolidation is or how it can benefit you? Take a look here at why it’s a great option to get help get your finances under control.
What is debt consolidation?
Debt consolidation is a form of debt refinancing in which you take out one large loan to pay your other small loans and debts off fully. It works by consolidating all your existing debt into one easy to manage loan repayment that allows you to keep a handle on your finances without too much trouble.
Why is debt consolidation a great idea?
Debt consolidation is a great idea for a number of different reasons.
● Easier repayments
The main perk of consolidating your debt into one easy to manage repayment is the idea that the one repayment is much easier to handle financially.
● You can save yourself some money
A second great benefit of consolidating your debt is the fact that you are only going to be paying one loan off. By consolidating multiple debts into one, there is the possibility that you will be paying less interest fees. Many financial obligations such as credit cards have relatively high interest charges. By consolidating these types of debts into a lower interest option there is a good chance that you will save yourself money on interest charges alone.
● Lower interest rates
Generally, the interest charges on a personal loan or a debt consolidation loan tend to be much lower than that of a credit card.
● Lower repayment amounts
Another benefit that appeals to many people who opt to consolidate their debt is the fact that their monthly repayments to the consolidated personal loans tend to be a lot lower than when they were paying multiple different repayments. This tends to make it a lot more manageable and stress-free.
Are there any negatives to debt consolidation loans?
You may be wondering If there are any negatives to applying for a debt consolidation loan, and this is a valid concern. If you are seriously considering utilising debt consolidation to get your finances back under control there are a couple of things for you to watch out for.
● You may pay more interest over time
One thing to be aware of when you’re consolidating multiple debts into one payment is that you potentially may end up paying more in interest charges. Generally, your new consolidation loan will be set up over a lengthier loan term which may lead to paying more interest over time. However, if you decide to pay your consolidation loan off early you will likely be able to avoid any such interest charges. Just remember to check with your consolidation loan company that paying your loan off early is an option.
● There may be some upfront costs
As you are technically applying for a new loan there is a chance that you may be charged some upfront costs such as establishment fees or account fees. This will usually be added onto the balance of your new consolidated loan account and can be paid off over the life of the loan.
● Debt consolidation doesn’t guarantee that you won’t go into debt again
One thing that you need to watch out for when consolidating existing debt into one loan is that you don’t accidentally go into debt again. When credit such as a credit card or some personal loans are consolidated into one debt the original accounts can stay open, ready to be used again. This is understandably tempting and can be a quick course to further debt on top of the consolidation loan. Before you know it, you’re right back where you started with finances that you’re struggling to manage. Immediately closing off the old accounts can be a good way to get rid of the temptation to rack up more debt on top of your consolidation loan.
Should you choose a debt settlement company?
You may have heard about debt management plans from debt settlement companies. These are a different type of debt consolidation and come with a set of rules of their own. A debt settlement company will negotiate with your creditors for a lower balance on your accounts. You will then pay a monthly consolidated payment to the settlement company who will in turn make payments to your creditors on your behalf.
Keep in mind that although your monthly repayments may seem to go down, you are still technically liable and responsible for the debts owing to your creditors and any late or missed payments from your settlement company will still reflect directly back on you and your credit score. There is also a good chance that this type of debt consolidation will have a negative impact on your credit score, especially if your accounts are closed but not paid in full as would be the case if you have a lower balance arranged through a debt settlement company.
For those who do not want their credit score impacted, a traditional debt consolidation loan through a normal lender may be the better option. However, if you want someone else to do the hard work for you, a debt settlement company could be a good fit.
It always pays to do your research prior to signing on with any company to ensure you know how this will affect your future borrowing power and credit history.
Is debt consolidation worth it?
If you have found that your finances are starting to get out of hand and you’re looking for a way to take the stress out of your monthly repayments, then debt consolidation may be just the thing for you. With the ability to order your finances into one repayment, lower your interest rate and make your finances a lot more manageable, debt consolidation can be a great option to get your money back on track and take the stress out of your finances.