When you’re getting behind on your credit cards and loans and everyone tells you to consolidate, what do they mean? And how can that help you? Below, we’ll discuss exactly why consolidating debt could help your situation, and how you can go about finding the best debt consolidation opportunity.
Why You Should Consolidate
While consolidating your debt won’t actually decrease the principal amount that you owe, it can help make the amount more manageable. Your multiple loans and debt essentially get paid off and a new loan takes all of the debt’s place.
This new loan will make repaying your debt more manageable, with only one payment to one source every month, and that payment is typically much smaller than the sum of payments you were trying to make with multiple bills.
Consolidating your debt can also protect you from adverse effects to your credit score due to missed, late, or partial payments. All in all, consolidating loans can help you repay your debt painlessly and potentially quicker than if you pay debt separately with its lower interest rates and more manageable payment amounts.
How to Consolidate
The first thing you must do when consolidating your debt, is decide what type of consolidation loan to choose: secured or unsecured. Secured debt consolidation loans are essentially tied to another asset that you have, such as a house. If you default on your consolidation loan, you put yourself at risk of losing your asset. However, it may be easier to get a consolidation loan with good terms, and for higher amounts, with a secured option. Unsecured debt consolidation loans are more difficult to obtain, but they typically have shorter term lengths, resulting in lower interest amounts paid.
Once you determine what type of loan best suits your needs, you just need to choose a reputable financial institution to take it from there. Many people choose their personal bank to take on the new loan, especially if it manages their home mortgage in a secured loan.
A Word to the Wise
There are a few things you should understand before committing to consolidating your loans. First, consolidation won’t reduce the total amount that you have to pay, just the monthly payment. Second, the loan term may extend past the initial term of your different debts, meaning that it won’t necessarily lead to quicker debt repayment. Third, a consolidation loan is a convenient and easy way to bundle up your existing debt, but it will not protect you against future accrued debt on credit cards and such, so you must be ever vigilant to prevent these bills from piling up and getting out of hand.
It can be overwhelming to be behind on bills, but debt consolidation loans can help make your bills more manageable, help you protect your credit, and get you out from under that pile of debt in no time. To get started improving your debt situation, check out the tips above to see if consolidation is for you.
Have you ever consolidated any debt?