When money trouble bites hard, and you succeeded in figuring out how you got yourself into the mess, then it’s time to get some quick solutions and go back to enjoying life. Choosing to consolidate your debt will get you some freedom. However, start your journey by consulting a professional. That way, you will get a clear perception of the state of your finances after the debt review. Even then, debt consolidation offers benefits to borrowers.
Repaying several loans is an arduous task on your time and earnings. Debt consolidation allows you to combine the debts into a single payment, or take out another loan to pay off many debts so that you remain with only one.
You save time on your budgeting, as one loan is easier to manage than making multiple payments each month for your several loans. Moreover, you have more money left over after the consolidation, and the accompanying decreases interests and reduced deductions.
A comparison of your credit limit to your credit loan balance significantly contributes to your credit score. Should you decide to take out a personal loan to pay off your many credit card loans, when the personal loan installment is small enough to lower your credit utilization ratio, then your credit score rises.
Emotionally you feel more secure knowing that you have some more bucks left over after balancing your accounts. The reduced financial problems should translate to reduced stress and better relationships with your loved ones. Remember though that this is not play money and you should engage your family in finding better money management and wealth creation options.
Keep perspective on your actual situation as the relief of the benefits of consolidation may make you lose focus of your financial habits and the long-term implications of the new loan.
As you consider this financial step, make a candid review of your money management habits. Remember, debt consolidation treats how you manage your debt but is not a solution to how you got into the financial mess.
Additionally, the reduced payments don’t eliminate the initial debt, in the end you pay more and it takes longer to clear the loan. How? Interest paid on debt accrues over time and since the lower payments will run for a longer time, eventually you end up paying more on the new loan.
Ensure you go through the terms of the consolidation agreement carefully. Confirm whether you need to secure the loan with your property. In the event you fall behind on your payments, you may end up losing your property.
Consider too that if you take out a big loan to settle your credit card debt, the high loan will lower your credit card score by raising your credit utilization ratio. In such a case, calculate to see if you stand to gain by consolidation, or you would rather adjust your lifestyle to live on less and pay off the debt until such a time when consolidation will be an advantage.
In this case, you could opt for debt management. Here you renegotiate with your lenders for alternative terms to make payments affordable. It leads to lower payments but still extends the repayment period.
Every case is unique so consult a trusted personal finance advisor for calculations to help you choose the best option for your situation. Sometimes, when all fails you may have to file for bankruptcy.
Regardless which one you choose, take advantage of the financial boost on your net income from the decreased interest rates and lower payments on the loan. Save this extra money for emergencies that would otherwise get you back into debt, or invest it in a reliable project to grow your wealth.