Debt consolidation loans are a great solution for those who wish for a streamlined management of finances. A debt consolidation loan is when you take out a new loan to pay off your multiple credit card balances and debts.
According to the companies offering consolidation loans, the benefit that people enjoy from the facility is borrowing money at a low rate of interest and paying off their credits cards and debts at a higher interest rate and saving money in the process.
Apart from this, they’re plenty of other plus points for debt consolidation loans to work in your favor. It is also very uncommon to across any downsides of this financial management system.
Debt Consolidation Loan- What it is
Primarily, debt consolidation means taking out a new loan or getting credit card for balance transfer, to pay off multiple debts at a time. This finance solution comes at lower interest rates most importantly. In this process, when you consolidate a debt with your personal loan, you use the proceeds to pay off each separate debt on your name.
You will come across many lenders offering specialized debt consolidation loans but you can very well use the standard personal loans to consolidate your debts.
Here are five top advantages of debt consolidation loans:
Accelerated Payoff
In comparison to your individual loans, if your consolidation loan accrues less interest, you could try and use your savings to make the extra payments each month. With this option, your debt payoffs accelerate and you may even save more interest in the long run.
However, you must note that in the long-term, debt consolidation will typically extend your loan terms. This means that you will have to meet your debt payments early if you have wish to benefit from this feature.
Single Payment Approach
Paying off multiple debts at a time is mind boggling and surely stressful for everyone. With debt consolidation, your debt payments simplify and if your payoff periods extends, you can also enjoy easy and lower monthly payments.
Most people have multiple credit card payments and perhaps you do as well. When you consolidate everything into a single source, you will feel quite unburdened and at peace. Debt payments are something no one enjoys and they can be quite a huge worry when the end of month approaches.
Whole consolidation loans don’t make your debts disappear, they certainly make the several payment deadlines disappear. With this, you have to focus on a single debt source only and that is way easier.
Streamlining Your Finances
Perhaps the greatest benefit for many is how a debt consolidation loan can streamline their finances. Not everyone has the talent of organization, especially in financial concerns. When you combine multiple outstanding dues into a single loan, you become sorted.
This loan also helps improve your credit when your late payments automatically simmer down. Once you start paying all your debts easily, you get to finally adopt the debt-free lifestyle you yearn for.
Credit Scores Increase
We all love fantastic credit scores and there’s no human being that would deny it. The best part of consolidation loans is how they boost our credit score. If a personal loan is your option of debt consolidation, you will have better chances of experiencing an increase in your score in but a few months.
All of this happens because the process helps you lower your credit utilization rate. The rating number develops from the sum your currently owe divided by your credit card limit. For instance, if you $5,000 remaining in two of your credit cards while one has a balance of $2,500, your utilization rate will be at 50%. Do you know this happens? Simply because you’re using only half of your credit amount available.
This benefit surely sounds very appealing but it is important to remember that you may likely see credit score dip slightly when acquiring new credit. However, the good news is that it is only a temporary situation and in the long-term, your credit score will gain pleasingly and your savings on interest too. This cements a consolidation debt as a wise move financially.
Monthly Payments Decrease
When you go for a debt consolidation loan, you will find quite a pleasing impact on your monthly payments. These decrease quite favorably for a month because your future payments span over extended and new loan terms.
If you consider it from budgeting point of view for a month, you will find it a very advantageous feature. But you must note that it could also make you pay more with if you’ve got a lower interest rate, for the life of your loan.
Is Debt Consolidation a good idea?
If you’ve got several high interest loans, then debt consolidation is a good idea for you. But you must note that that you will only find it beneficial if your credit score enhanced since you first applied for the original loans.
If unfortunately your credit score is still not good enough to earn lower interest rates, you will most likely find debt consolidation least beneficial for you. Similarly, debt consolidation loans will also not work in your favor till you don’t address the underlying and main reasons that caused the current debts. Was it overspending, not being able to resist credit cards etc.? If the main reason remains unsolved, debt consolidation will be fruitless in your case.
Final Thoughts
Debt consolidation loans are quite advantageous for people but only if the conditions are right. Before you sign a debt consolidation though, remember to review your monthly minimum bills currently. Also consider the amount of time you have to repay the dents and compare the timeline with expense of applying for debt consolidation. Once you align all the factors and the advantages outweigh the other factors, you’d be good to go.
Rest assured, debt consolidation is surely a great solution for those who wish to streamline their monthly payments. Those with good credit scores will be able to enjoy the benefits of this plan too, such as low interest rates.
