Consumers manage trillions of dollars in debt. Sometimes, however, debt can cause trouble with your finances. When this happens, you might find debt consolidation is just what you need to regain control.
Keep reading to learn six impressive benefits of debt consolidation.
Types of Debt
There are many causes of debt, but they typically fall under four categories:
- Revolving debt
- Secured debt
- Unsecured debt
You can classify debt under one of these four groups, whether it’s credit card debt, a student loan, or an emergency medical bill.
Debt Consolidation Loans
A debt consolidation loan lets you pay a lower interest rate on debt. You’ll also pay a lower monthly payment.
It’s a single loan you’d use to pay off your other loans and combine your debt, as the name implies.
Benefits of Debt Consolidation
Consolidating debt is helpful if you have a high-interest loan. In some cases, however, this kind of loan is only a good idea if your credit has improved since the original debt.
Debt consolidation works best when you consider what led to your current debt. For example, you may need to curb overspending.
You shouldn’t use a debt consolidation loan only to allow yourself to fall back into debt. This financial habit can result in even more problematic financial troubles in the future.
Let’s look closer at the benefits of a debt consolidation loan.
1. Debt Consolidation Can Save Money
The primary goal of a debt consolidation loan is to help you save money. You should view it as a tool to save on interest.
For instance, a debt consolidation loan might give you access to a lower interest rate. Alternatively, it could shorten your repayment timeline.
For example, a balance transfer credit card can enable you to pay off your debt with zero interest. However, you must qualify for a 0% APR introductory interest rate.
The introductory period usually lasts around 18 months. You must pay off your debt within that time. If you don’t, you must pay the interest rate agreed to when accepting the card.
2. Debt Consolidation Can Make Budgeting Easier
It can prove tough to stay on top of payments when you’re juggling many bills. You could receive a damaging mark on your credit by missing a single payment.
With debt consolidation, you can roll your monthly payments into a single bill. By doing so, it will become easier to track your repayment progress. You’ll also find it’s easier to keep track of your bills.
Also, you won’t have to worry about overlooking a payment. More importantly, you won’t have to concern yourself with damage to your credit because you forgot a debtor.
3. You May Pay Off Your Debt Faster
Many times, people can incur debt because they don’t have a plan. In these cases, it can seem like you’re throwing your money at debt and not making progress.
Things are different, however, when you consolidate your debt. You can set a timeline for when you’ve completed your payments. Also, debt consolidation makes it easier for you to clearly see when you’ve met your obligations.
A personal loan can help you reduce your debts with one monthly payment over time. Meanwhile, a balance transfer credit card can help you avoid paying interest on transferred debt.
4. You Can Lower Your Monthly Payments
With debt consolidation, you could pay off your debt faster. Alternatively, you could consolidate your debt across a longer timeline. You’ll also have lower monthly payments.
Yet, it’s important to understand you’ll also pay more interest with a long-term loan. Still, you can free up money for monthly expenses by using a debt consolidation loan in this way. This is a good tactic if you’re struggling to pay your monthly bills.
5. You May Help Your Credit
Your credit score shows lenders your ability to make on-time payments. However, this ability isn’t the only thing that determines your credit score.
Lenders also consider your credit utilization ratio heavily. It’s the revolving credit you’ve used compared to what you have available.
Your credit utilization ratio can impact as much as 30% of your credit score. Ideally, you should keep your credit utilization low so you don’t negatively affect your credit.
6. You May Pay Lower Interest
It’s possible your credit has improved since you accepted a loan. In that case, you could decrease your interest rate by consolidating your debt. This is possible even if you have low-interest loans.
This tactic can help you save money during the term of your loan. It works especially well if you use a short-term consolidated loan rather than a long-term one. With debt consolidation, you can ensure you get the most competitive interest rate available.
Money Saving Tips
Before borrowing money, you should explore other options. Your first option is to make a budget. Your budget should help you keep up with debt.
It may also help to contact your creditors to arrange an alternative solution. For example, your creditors may allow you to negotiate a lower interest rate. Alternatively, they may allow you to make a lower monthly payment.
You could also request to settle your debt for less than what you owe. Your creditors might also waive late penalties and fees if you make this kind of arrangement.
If you need help coming up with alternative financial strategies, it’s a good idea to work with a trusted credit counseling agency.
Get Access to Cash Now
You now know more about the benefits of debt consolidation. If you need access to financing, Loanz.com can help.
We have an easy application process. You can even contact your bank for fast verification. In some cases, you can receive approval in real time.
Some of our clients have their funds deposited in as little as 15 minutes after approval. Also, your interest rate will remain the same throughout the term of your loan.
Don’t wait. Get started securing funds today.