It’s a materialistic society that we live in and people really have huge ambitions that can keep them on the edge. Easy availability of credit and seemingly-nominal interest rates can keep you taking on additional debt without a care in the world. After some time, you are faced with a mountain of credit card bills, and not-so-polite reminders from your lenders. Unless emergency action is taken, you will start receiving calls from debt collectors, and your assets may also be seized. If you cannot manage the situation on your own, then debt consolidation loans may be a very good idea to be explored.
What Is Debt Consolidation?
Rather than having numerous debts, the process of combining all of them into one larger debt is what debt consolidation is all about. The advantage of doing this is that you no longer need to manage multiple monthly bills, each with their high interest rates, and substantial monthly minimums. When you consolidate your debt, you are left with just one debt that requires just one monthly payment and one minimum due to meet. Taking a debt consolidation loan can ease the pressure off you by lowering your monthly payments due to extended period that may now be available for paying back the outstanding amount. There are also other advantages of this route that makes it an attractive proposition.
Lowers Interest Rates
Topically, interest rates of credit card debt tends to be very high.If you have multiple credit cards having different rates, you will gain substantially by availing yourself of a debt consolidation loan. This is because these loans invariably carry an interest rate that is significantly less than the average of credit card rates. This move will save you quite a lot of money making it easier to pay off your debt.
Improve Credit Score
The financial discipline that is imposed on you upon availing of a debt consolidation loan will enable you to manage your finances better. As long as you do not carry on with your earlier profligate ways and take on additional debt, you will be able to meet your monthly dues more comfortably than before. A clean track record of paying off your debts will assist in cleaning up your credit report. The improvement in your financial rating with lending institutions will help you in the future to take mortgage or other secured or unsecured loans.
Lesser Monthly Paperwork
With a debt consolidation process, you are left with only a single loan to be serviced. You will no longer be receiving innumerable credit card statements or bills from lenders that leave you confused and in despair. You are automatically in a better frame of mind to apply all your energies to be extra-productive and manage your finances better so that the existing debt can be paid off easily.
Save On Penalty Payments
With multiple debts you have to juggle around to make the monthly payments, and it is quite likely that you may forget to deposit the minimum payment due on some bills. This makes you liable to pay additional penalties that can be quite substantial if you count the number of such incidents over a year. With a debt consolidation loan that includes all the smaller debts, you are saved from making multiple minimum payments every month and thus attract no penalty payments.
Extended Time Frame
One of the advantages of availing of a debt consolidation loan is that the monthly payment due from you is calculated after taking into account your income sources and repayment capability. As a result of this, you will normally have an equated monthly instalment that you can afford with prudent financial management. This is possible as the debt now has to be settled over a longer period of time. However, you should bear in mind that longer the time frame, the larger is your total interest outgo. So, you should try and have an EMI that is the largest you can afford and that will clear off your debt in the shortest possible time.