How many credit counsellors and financial planners have you asked expert debt management tips from? More than one! This also means that you have listened to countless lessons on how you may never get out of debt. Well, this is untrue because you can get out of the overbearing debts by taking up a debt consolidation loan.
You always think that things are running well until you realize that you have been living off debts and you have to take another loan to pay that one nagging creditor. While debt consolidation loan involves applying for a loan, you should know that this loan is the kind that can help you end your financial troubles for good. How?
A debt consolidation loan is a refinancing option for your debts. The loan taken is used to pay all the other loans. As a result, you will be left with one loan to repay monthly. Therefore, if you take this loan and change your spending habits or increase your income, you will have a high probability of leading a debt free life within a few years.
If you are almost jumping on this ship, you might want the other uncanny benefits of a debt consolidation loan. They include:
- Repayment at lower interest rates
Debt consolidation companies offer lower interest rates as they don’t work like your common bank. The company will take up all your debts then work out a lower interest rate compared to the average current rate. This saves a few dollars eventually.
Before paying off your creditors, the debt consolidation company negotiates with the creditors for lower interest rates if paid in lump sum. The benefits of this arrangement are shared with you through the lower interest charged on the debt consolidation loan.
If you are servicing high interest rate debts, then you should get a debt consolidation loan because you will be offered a lower interest rate. The best consolidation companies offer interest rate reduction of up to 30%. If you are in debt up to your neck, then you know how much the difference will be.
- Lower monthly repayment
This is the reason why most people take on debt consolidation loans. The promise of lower monthly repayments means that you can save more.
- It is a convenient loan
A debt consolidation loan is an unsecured loan that is categorized as a personal loan. Compared to bank loans, debt consolidation loans are often provided by entities other than banks. With these entities, the debt consolidation loans do not require a lot from you in terms of security.
Note that you qualify for a debt consolidation loan even if you have a poor credit score. This makes it accessible to many. You might pay slightly higher if you have a poor credit score as you are considered a credit risk. However, the total cost of this loan is lower than that of the bank and the chances of a declined application are higher from the bank.
After approval, you won’t have to go down to an office to sign papers and pick the loan. The loan is deposited to your bank account directly within a few days.
- Vision of when you’ll be debt free
Debt consolidation loans from many debt consolidation companies are offered at a fixed interest rate. This means that the payment plan and the total savings can be accurately provided. This also means that you will always have an accurate vision of when you will be out of debt. It is easier to make tangible financial plans when you know how much to pay now and then.
- Easy application process
Unlike a bank loan, a debt consolidation loan application process isn’t complex or time consuming. Since the debt consolidation companies operate online, applications are made online and you get to know if there are problems with the application or if you qualify for the amount applied for within a few hours or minutes.
- You save more taking this loan
As a rule of the thumb, you should always calculate the debt consolidation loan to know if you can afford it. Most debt consolidation loans lead to savings. Interest rates that are lower than the initial average interest rates mean that you save some money and this automatically translates to savings.
- No prepayment penalties
Do you get frustrated by the penalties your creditors impose when you pay your debt early? You are not alone. You can say that debt consolidation companies were created to resolve this issue since they do not impose any penalties on prepayments. This helps you get rid of future interest payments and therefore saves more money.
- The loans boost your credit score
Non-payments damage your credit score. When you have multiple debts to repay monthly, there is a high possibility of you forgetting to pay off one or two debts in time. If this is repetitive, you will not be listed as a good person to give loans to and your credit score drops. Debt consolidation resolves this by consolidating your loans.
A single monthly repayment is manageable. Your record will have many repayments and within a few months, your credit score on FICO will rise. This results in lower interest rates in future. The ‘high-risk borrower’ label is also removed.
- Elimination of late fees
Normally, defaults on debt accounts attract penalty fees and late charges. The accrued interest also piles up and with time, your financial burden will be too heavy. A single, lower monthly repayment will be a relief and there are lower chances of default hence elimination of late fees.
- It is unsecured
Nowadays, most established companies and even your friends ask for security when you ask for a loan. This isn’t the case with debt consolidation loans. They are therefore easily accessible and will save you on a stormy day.
In conclusion, debt consolidation loans are what you need to resolve your financial troubles. However, you should be able to change your lifestyle to prevent accumulation of more debt after getting the debt consolidation loan.