There are a few legit reasons why some people accumulate debt, like unforeseen expenses and unemployment. Some of them have bad spending habits while others spend way more than what they are earning. Imagine how easy it is to buy the latest gadgets by swiping the credit card, only to realize that problem when you see the bill at the end of the month. Aside from the high-interest credit card rates, there are also auto and home loans, student loans, and consumer loans that need to be settled.
Debt consolidation is a process where various unsecured debts are combined into a single monthly payment. This form of debt refinancing is popular because it benefits both the debtor and the lender. It is easy to see how it can make a big impact in your financial situation. And while it can bring financial relief, debt consolidation is not the right option for everyone. Here are a few things to consider.
1. Single Monthly Payments – Paying multiple lenders at different due dates can be a major headache. By consolidating debts into a single payment, you do not have to worry about missing out on one or two monthly payments.
2. Lower Interest Rates – You may be qualified for a lower interest rate depending on your creditworthiness. However, not all debt consolidation would result in a lower interest rate. One perfect example is consolidating student loans through Direct Loan Consolidation Program.
3. Reduced Monthly Payments – Consolidating your loans with a new lender means your new payment scheme reclocks over again. However, be sure that you are comfortable with the new duration of the repayment term.
4. Improve Credit Score – Too many debts and late payments can definitely hurt your credit score. However, debt consolidation can help revive and improve your credit by helping you stay on top of the payment schedule.
Ways to Consolidate Debt
Although there are various ways to consolidate your debts, here are a few things to consider before making any final decisions:
- Check your credit report and know the total amount of your debt.
- Evaluate all your assets, like home, vehicle/s, and other valuables, and know which ones you are willing to liquify to help pay your debts.
- Review how high or low your credit score is and the potential impact of a failed debt consolidation.
Have a clear picture of your financial status to determine your debt status and how you can successfully pay them. While mortgages debt consolidation may seem intimidating, find a financial expert near you and discuss your financial status to help you learn how debt consolidation is beneficial for you.