Nowadays, it isn’t unusual to get into debt. From credit cards to auto or student loans, one had to ask for financial assistance. And getting caught up with all the several interest rates and fees might prove to be too much of a financial burden.
As such, a Debt Consolidation Loan might be the right move for you. But, what exactly is this loan?
DEBT CONSOLIDATION
It is a very popular strategy mostly advised in paying multiple debts with high-interest rates. And streamlining your liabilities into one consolidated loan can significantly reduce your risks.
Some lenders will offer a personalized debt consolidation loan or a personal loan with lower interest to help you catch up and keep your credit standing.
Many trustworthy lenders will pay your creditors on your behalf, and some will give you a lump sum to disburse and make the payments yourself.
IS IT FOR YOU?
There are a lot of positives in availing of a personal loan with debt consolidation as your purpose. However, you do need to have a good credit score and history to get one. The more refined your credit standing is, the better interest rates you can get.
Here are several reasons for doing this financial strategy.
Can Expedite Payoff
If you have a good credit score, you can use a personal loan with lower interest rates. As a result, you can easily save up on interest, and you can consider making extra payments each month. This way, you can refund the loan faster than you would be paying the individual loans.
Streamlines Finances
Having fewer loans to pay will reduce the number of payments and interests you have lined up per month. Consolidating your loans will also reduce your chances of making late payments and improve your credit.
Moreover, your monthly dues will most likely decrease because you will take out a new loan. This means you can have extended or longer loan terms from your existing individual loans.
May Lower Interest Rates
Remember that some loans have higher interest rates than others. Credit cards, compared to student loans, are one good example. If you have been keeping up with your payments, taking out a personal loan with lower interest rates to pay these several debts can be more than helpful for you in the long run.
THINGS TO CONSIDER
Given the right circumstances, availing of a facility like a Debt Consolidation Loan is a smart financial strategy. So, before getting one, here are a few things to consider.
- Consider your credit score first – If you were able to increase your score since taking the other loans, this would increase your chances of getting qualified for a consolidated one.
- Consider your total debt – if you can pay your loans in a year, consolidating them isn’t for you. The fees and credit check will not be worth it.
- Consider your monthly cash flow – you should only consider getting another loan if you have enough to cover the new monthly payments.
TAKEAWAYS
Personal loans might be convenient and quick but consolidating your loans isn’t a be-all-end-all solution to your financial problems. It won’t fix your underlying financial struggles. Remember to first consider all the aspects and find the correct terms that fight your needs.
Bio: Ellen Hollington is a freelance writer who offers ghostwriting, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.