Debt consolidation is taking out a new loan to repay your other credit card and consumer loans. It’s a process that could save you hundreds of dollars in interest charges, simplify your bill-paying and reduce the complexity of your overall financial picture. It also may help to improve your credit rating since when you use a personal loan to pay off credit cards and other high-interest debt, you’re lowering those balances and reducing your overall debt level.
Top 10 Reasons To Consolidate Your Loans:
Interest Rate Reduction
The most significant benefit of consolidating your debts is that you can borrow the exact amount you did before. Still, the interest rate on the new loan will likely be much lower than that on your previous loans. Over time, this difference in interest rate may translate into hundreds or thousands of dollars in additional savings.
When you consolidate your debts, you are often relieved of monthly payments. It makes it easier to set aside money for savings, pay down your current loan, or even have extra cash at the end of each month when you only have one set of payments to consider..
Reduced Monthly Payments
Consolidation is one of the best ways to eliminate having multiple monthly payments and reduce your debt burden. Once you know how much you can afford to pay each month, this new payment schedule will become a part of your budget and help keep you out of more debt.
Simplified Payment Options
If you are paying off several credit cards or loans from several creditors, you may make payments on various due dates. Those who work extra hours to pay off a card or loan may get another paycheck cut by the time they pay all their bills. After consolidation, however, you will have only one due date and one account to keep track of.
Better Credit Rating
Consolidating your debts will allow you to pay off more of your monthly balances, reducing the total amount required and lowering your interest rate on new loans or credit cards. It reduces the number of accounts that appear on your credit report and improves your credit rating.
Better Management Control
If you have trouble keeping track of your bills, consolidating your debts can become the easiest way to stay organized. Knowing one monthly payment date and one place to send those payments makes it much simpler to keep track of things.
Increased Savings Rate
Consolidating your debts can help you increase your savings rate.
Most credit card and loan agreements allow for a temporary suspension of payments for extenuating circumstances like a long illness or temporary loss of income..If you have consolidated your debt, this will simplify the process by only having one credit provider to make arrangements with if the worst does happen.
Avoid Default And Bankruptcy
Consolidation can make it easier to avoid defaulting on your payments. Rather than making payments from three credit cards or other loans, you only have one account and one payment date, which means the chance of missing a payment is low. If a payment is late, they will reflect it in your credit rating once – not three different times.
Increased Cash Available for Retirement
Consolidating your debts is often a smart way to increase your cash in retirement. Many people are putting off this vital milestone because they don’t have enough money. By consolidating, you can start saving early and only pay the interest on what you owe. It will significantly increase the amount of money to be put into the stock market or voluntary super contributions to support your lifestyle when it’s time to retire.
Consolidating your debt is a great way to improve your credit rating and save money. The process can also help raise your savings rate, which has the added benefit of allowing you to reach that golden retirement goal. When consolidating your debts, it could be a worthwhile step to consult a financial advisor, particularly if you have high-interest loans or credit cards. Your initial step should be finding the best financial institution for you and a loan specialist who will give you the best possible rate.
By: Raymond James
About the Author:
Ray is a sought-after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.