Debts come off as a necessary evil because, though you may not wish to have a loan, sometimes your situation demands otherwise. Unfortunately, applying for a loan is simple but paying it off is an overly difficult thing to do. So, what do you do when you have a few or several debts that need to be paid off and you are not capable of paying them off comfortably? Have you thought of debt consolidation loans?
Well, for starters, debt consolidation refers to the process of summing up all your debts then paying all of the debts off as one. So, instead of having those five outstanding loans, you end up repaying one loan to one lender.
This definitely feels like an amazing plan for managing your debts. However, before taking that road, talk to your financial adviser and/ or a credit counsellor. Once you agree that debt consolidation is decided to be the best strategy, shop around the website for comparison of packages. The comparisons should include the annual interest rates offered.
After identifying the best lender for your situation, you will have all your debts under one house. Besides this, your monthly payments will be lowered in the following ways:
Lengthened repayment period
This doesn’t require a lot of logical thinking. Naturally, when you had to repay a $10,000 loan, made of constituent loans of $2000, $4000, $ 3500, and $500, in about 7 years, but you decide to consolidate the individual loans for less monthly repayments, your repayment period will be longer than 7 years. Fortunately, this will make things easier for you monthly even though you will have to make the same payments for a few more years.
Lowered interest rate
Check with the best debt consolidation company to determine the best interest rates payable after the consolidation. Most companies offer a lower monthly interest rate when it comes to consolidation. Basically, you will repay your debts for extended periods but at comfortable rates following the lowered interest rates. Your principal amount remains unchanged but you get to pay less monthly because of lowered interest rates.
Lowered fees and charges
There are fees charged to individual loans. By consolidating, the individual fees are summed up into one and in most cases, the fees are reduced. However, you shouldn’t assume this possibility from every credit lender. Debt consolidation reviews show a number of companies that charge high fees.
The other problem associated with paying off many loans at once is forgetting due dates and getting penalized for delaying payments. Such extra charges are avoidable under a reasonable debt consolidation plan.
Lowered principal amount
Replacing multiple rate loans with one loan that has a fixed interest and repayment rate, results in a lowered principal amount. With a lowered principal amount, you can easily get to pay less monthly.
In conclusion, debt consolidation is an appropriate financial management solution when you have several outstanding debts that can’t be comfortably paid off at once. However, it shouldn’t be your comfortable way out of financial crisis. After one debt crisis, you should try living within your means to save up on money without accumulating other debts. It is also prudent to get a realistic consolidation plan that will not result in more money paid at the end of the repayment period.
You may consider consolidation if you use your credit card to meet your monthly expenses, you write checks for amounts more than what you have in your account, you buy items using your credit card though you wouldn’t do the same with cash, you borrow from everyone, you are unable to pay your bills, you lie about your spending, or you have received a call from a collection agency.