For people who are deeply mired in debt, debt consolidation is often suggested as a practical and viable way of sorting out their financial mess. However, there are a number of aspects that you need to consider to establish if debt consolidation is the right route for you. Some common questions:
How Does Debt Consolidation Help?
Debt consolidation can have a number of benefits for you; you can manage your finances better as due to the debt restructuring possible, the monthly payment can go down to an affordable level, you no longer have to monitor multiple debts, and you can get a longer tenor to pay off your debt. As a result, your stress levels can go down and you can enjoy a good night’s sleep.
What Are the Advantages of Debt Consolidation?
There are innumerable ways by which you can accumulate debt; credit card bills, medical expenses, cash advances, and payday loans represent some of the most common ways you can run up debt that can prove to be very difficult to manage. By opting for a debt consolidation plan that you can afford comfortably, you can ensure that your debts are serviced properly and you are able to save something by the end of every month. To ensure that you are not wasting your precious money, you should identify a debt consolidation company that does not charge any signup or registration fees. Referring to online debt consolidation reviews is a good way of doing that. Opting for an ethical debt consolidation company can get you access to expert and unbiased advice on how to best manage your finances and save you from filing for bankruptcy that can end up ruining your credit score for a very long time.
How Much Can Be Saved By Consolidating Credit Card Debt
Credit card issuers are infamous for charging extremely steep interest rates on credit card outstanding. It is quite possible to save a few thousand dollars on interest expense if you can consolidate $25,000 in credit card debt and pay it off with a personal loan in about 24-48 months’ time. This is possible because usually there is a huge difference in the interest rates between credit cards and personal loans.
Is a Debt Consolidation Loan a Better Option?
While you may be tempted to move credit card debt from one credit card to another to take advantage of a lower rate of interest, you will find out that when compared to a debt consolidation loan, the interest rates charged are still very high. Also, credit card companies have the habit of keeping on changing the APR periodically, so you may find the advantage of the low-interest rate disappearing just after a few months. However, to qualify for a debt consolidation at a good rate of interest, you need to have a good credit score, which may not be possible if you have let things slide and missed a payment or two on your credit cards. Also, having swept all your credit card debt into a debt consolidation loan, there is always the temptation to go wild with your credit cards and rack up huge dues again.
How Does Debt Consolidation Affect My Credit Score?
Maintaining a good credit score is extremely important because the ability to take on future debt depends on how high it is. However, often it can become very difficult for you to service credit card dues when they are attracting interest that is as high as 30% and it is natural for you to miss a payment to two, and this is bound to negatively impact your credit score. If you have maxed out your credit cards and take on a debt consolidation loan to settle all the outstanding, it can only positively affect your credit score. However, you should be careful that if the company you approach settles your credit card dues with the card companies for less than the full balance, there will be a negative impact on your credit score for some time.
Debt consolidation can be a very effective way of getting out of a debt trap because of its inherent advantages of being able to take on a loan at a lesser rate of interest as well as the opportunity of being able to restructure the loan tenor to suit affordability and budget.
Author bio: Graham Sheldon is an experienced personal finance consultant working for a leading debt relief company. Graham has also compiled a number of debt consolidation reviews that are a valuable resource for individuals looking for reliable agencies.