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Exploring your debt consolidation options?
Falling into debt is never a nice situation to be in.
However, no matter how financially savvy you may be, there may be challenging times in life when it just seems like there’s no other recourse but to borrow money. Whatever the situation, there’s still a way out. And, it’s a good start that you made it here today, searching for means to get rid of your debt.
One of the tried-and-tested methods of moving past debt fast is through something known as debt consolidation. What is debt consolidation? This is a type of loan that’s used to consolidate or pay for multiple loans and combine all those monthly payments into one payment, usually for a lower interest rate. While debt consolidation may sound like an ideal solution, this doesn’t mean that you should immediately sign up for one without learning more about it first.
To help you decide whether or not you should apply for debt consolidation, here are some of its pros and cons:
These are the reasons why consolidating debt is a good idea:
If you have multiple loans, this means you’ll also have to keep track of multiple payments. With each having their respective interest rates, these payments will significantly impact your finances. You may even be confused about which loan to pay off first this month and which ones you can put off until later.
When you opt for debt consolidation, you can enjoy an opportunity to streamline your finances. This is achieved when the debt payments are reduced into a single debt, with only one interest rate payment. Along with this, you can also enjoy the added advantage of improving your financial situation. With just one debt to worry about, you’re less like to deal with late payments or missing a payment entirely. This can bring you one step closer to your goal of living a debt-free lifestyle.
Debt consolidation may enable you to repay your debt sooner, as this also gives you an opportunity to fast-track your payments. If you’re dealing with credit card debts, you would know that credit cards don’t come with a set timeline as to when the balance should be paid off. This is unlike debt consolidation where you’re given a timeline and a schedule of fixed, monthly payments you have to make.
This arrangement is the main reason you’ll be able to repay your debt sooner. The earlier you pay off your debts, the lower your interest payments will be. This means you can also start making the most of your finances sooner and direct your money towards other financial goals you may have.
Can you imagine how much money you’re wasting on the interest payments for your credit card debts? That's hard-earned money that you could’ve used for other important financial goals.
However, with debt consolidation payments, your interest payments may be significantly lower. This is because when compared to credit card loans, debt consolidation loans usually have lower interest rates. This enables you to start focusing on what you should be saving your money for rather than the interest payments you’re consistently spending it on.
Like any other financial plan or action, there are also disadvantages to debt consolidation. Generally, the most significant con of debt consolidation is that you may be asked to secure collateral.
The disadvantage that debt consolidation loans have compared to credit card loans stems from the fact that with credit card loans, you aren’t asked to secure collateral. After all, you're borrowing money from the bank each time you use your card. This is also the reason credit cards come with a hefty interest payment.
With a debt consolidation loan, the interest rate is low. However, in exchange for the bank or lender’s security that you’ll pay your loan, you may be asked to pledge collateral. This can either be your car, home, or any other asset that’s under your name.
As long as you’re confident you’ll be able to abide by the conditions of consolidating debt, the collateral shouldn’t be an issue. If your current financial situation renders you unsure about whether or not you can pay for the debt consolidation, then you may want to think your application for debt consolidation thoroughly first.
This list of the pros and cons above may not be exhaustive, but it should give you a clear picture of whether or not consolidating debt is your best recourse. Don't decide on this matter haphazardly, as it’s a serious financial decision you’ll have to think through carefully. It’s up to you to weigh the respective pros and cons that apply to your financial situation.
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