Are you struggling with several high-interest loans and want a quick way out? Is bankruptcy looming and you want a fast and effective solution? Or are you just looking for a way to manage your finances better? If so, debt consolidation is ideal for you.
What Is It?
Debt consolidation means getting a single big loan to pay off all your smaller loans, leaving you with only one monthly payment to make instead of several ones that are difficult to manage. The primary goal of consolidating your debt is to lower your interest rate, reduce the monthly payment and pay off your debt quickly.
How Does It Work?
Typically, small loans come with high interest rates. For instance, if you purchase an item worth $3,000 from a retailer on credit, you will be charged a higher interest rate than when you take a student loan of $30,000. Therefore, when you have several small loans, you will not just be making larger monthly payments to your creditors but will also be paying a lot in interest. The high interest may even hinder your ability to pay down the principle for the small loans and increase your chances of defaulting.
However, by combining all your small loans into one large loan, you will lower the interest rate significantly. With a lower interest rate, a large portion of your monthly payments will pay off your principle, enabling you to get out of debt quicker. Debt consolidation is ideal for paying down credit card debt, consumer debts such as car loans and retailer loans, and other high-interest loans.
Benefits of Debt Consolidation
Consolidating your loans will leave you with only one loan to manage. It is less stressful to deal with one debt than keeping track of several loan obligations. In fact, consolidating your debt means that all your creditors will be paid promptly through the bank and you will be left to deal with just a single monthly payment.
Secondly, consolidation results in a lower interest rate, allowing you to pay less of your money to interest and enabling you to get out of debt faster. Thirdly, you can use your assets (such as your home) to secure a consolidated loan in order to get a lower interest rate. Besides, consolidation protects your credit score as the sum of one large loan is used to pay off your creditors and there will be no delinquent payments reported to credit bureaus.
You work hard for your money and deserve to get more from it. It is therefore a shame to pay high interest rates on several small loans when you can easily avoid this by consolidating the loans. Remember, paying high interest rates can easily turn small loans into huge sums over time. Therefore, when you feel overwhelmed by credit card loans or consumer loans, consider debt consolidation as a quick means of getting out of debt.