Surviving in a materialistic society is a tough job, especially if you have aspirations to strive for. The fact that credit is so easily available and interest rates and schemes look so enticing that you end up taking on debt repeatedly till you are neck-deep in credit card bills and defaulted payments. You must act quickly, or you run the risk of being harassed by the debt collectors and also having your assets seized. If you are unable to deal with all this yourself, you must opt for a solution like debt consolidation.
Understanding Debt Consolidation
Debt consolidation involves bundling your numerous individual debts into a single large debt. What it does is eliminates the hassle of multiple bills and different high interest rates and monthly minimums each month and replaces it with a single minimum due and monthly payment. It is spread over an extended period and will lower your monthly payments significantly. Here are some major advantages of the same.
Interest Rates Are Lowered
Credit card outstanding debts tend to have very high interest rates. Having multiple credit cards, each with a different rate of interest, debt consolidation would be very beneficial for you. The interest rate will be significantly lower, and management will be that much easier. You will end up saving a good amount of money.
Multiple monthly payments give you too much scope for missing the minimum dues on at least a few debts every month. This, unfortunately, means that you will incur a number of additional penalties multiple times a year, which add up to even more debt to repay. A debt consolidation loan that will mitigate your debt and handle all smaller debts will ensure that you are able to avoid these penalties.
Your Credit Score Will Improve
Debt consolidation loans entail a degree of financial discipline that will certainly let you manage your personal finances in a much better way. If you are able to fix your lifestyle and not take on any additional debt, you should be able to cruise through the monthly dues in a much more comfortable way. With a clean repayment record, your credit report will begin to look better as well. This, in turn, improves your financial rating which will help with future loans or mortgages, if any.
Far Less Paperwork
By undergoing the debt consolidation process, you will not be receiving an inhuman number of bills from lenders or credit card statements every month. The mountain of paperwork that you would have had to sift through is reduced to a single statement. This allows you the peace of mind that you would need to be more productive in managing your finances.
The final gift that a debt consolidation scheme gives you is time. The lender will calculate the monthly payment amount due from you on the basis of your present and potential income as well as your repayment credibility. This means that you have a manageable monthly installment and also a comfortably long period over which the debt is repaid. It is worth keeping in mind that the longer you extend the period, the more is the interest you pay.
Jeff Sullivan is a debt and personal finance guru. On his blog, he discusses bankruptcy, wealth management, and how to take on the right loan and resolve it in time.