You’ve finally decided to do something about all those bills that are coming in, due to the ever rising interest rates you can hardly afford. Thinking of going the consolidation route, but you don’t know what it all entails. And in any case, is debt consolidation a smart thing to do? Let’s take a look.
What is debt consolidation?
Basically, it’s about consolidating several debts into one, using a personal loan or a credit card with balance transfer. The financial strategy streamlines payments, whereby instead of having multiple bills to pay each month, of varying amounts and deadlines, you will only have one payment, hopefully with a better interest rate. .
What Are Some Types of Debt Consolidation?
Two of the best ways to consolidate your debt include taking out a personal or consolidation loan or getting a credit card with balance transfer for your high interest debt.
Is debt consolidation a good thing?
It is for those who have a lot of high interest rate debt like credit cards. But it only really works if your credit is good enough to qualify for a lower interest rate than what you are paying in total on current debts. Run a debt consolidation search near me to find help with the strategy.
The bottom line is that consolidation is only a wise thing to do if your spending is under control. Otherwise, you’ll just end up in another hole.
What Are the Benefits of Debt Consolidation?
On the one hand, paying bills becomes easier since you only have one payment. And it can improve your credit because it reduces the likelihood that you will forget to make a payment or make one late. In addition, you will have a good idea of when your debts will disappear.
Consolidation could also help you pay off your debt faster, IF you have a better rate. If so, consider making an additional payment when you can, as you are saving money.
Also, even if you have mostly low-interest loans, if your credit score is better than it was when you applied for other loans, consolidation could lower your loan rate. global interest. This could save you money over the life of the loan. Debt consolidation could also reduce your monthly payment, as your new payments will be spread over a potentially extended loan term.
Finally, consolidating your debts will at some point cause a sharp drop in credit, which will temporarily affect your credit. In the long run, however, your credit could improve. How? ‘Or’ What? Well, when you pay off credit cards and other lines of credit, it lowers your credit utilization rate, which in turn improves your score. Your score will also improve over time just by making payments on time each month.
What are the disadvantages of debt consolidation?
No financial strategy is perfect, so there are potential drawbacks to consider, including costs like loan processing or balance transfer fees. You also don’t want to make the glaring mistake of ending up with a loan that is higher in rate than you currently have.
Also, debt consolidation does not solve problems that may have put you in your current state, such as overspending. For that, maybe a credit counselor or something like that would help. You definitely need to create a budget and stick to it.
So, is debt consolidation a smart thing to do? As you can see, it definitely has its advantages. Assess your financial situation against what you see here and determine if consolidation is the way to go – for YOU.