Debt consolidation is a popular debt management plan that can help one clear debt obligations quickly and efficiently. However, it's not a one-size-fits-all solution. The best approach here is to identify the advantages of debt consolidation programs and pit them against the disadvantages.
After weighing the pros and cons of debt consolidation, objectively reassess your finances. If your income doesn't cover monthly debt payments or your credit score doesn't qualify for a low-interest rate consolidation loan, reconsider your decision.
Debt consolidation is a debt refinancing strategy wherein the debtor consolidates all their existing loans under one repayment plan. The idea is to find a creditor willing to pay off your loan, negotiate for better loan terms, then proceed with the agreed repayment conditions.
It's important to note that fixing your credit card balances doesn't happen overnight. Revisiting your money management is key to make sure your debts stay away. Of course, finding reputable money consolidation programs will definitely set you on the right path!
Here are the top advantages of consolidating your credit card debts under one loan account:
Are you afraid to face your debts? You're not alone. Research indicates that many American consumers find themselves trapped in the chains of consumer credit due to fear and inaction.
A good solution here is to subject yourself to a repayment strategy like debt consolidation. First, it forces you to commit to a fixed monthly payment. It's harder to run away from debt if you only have a single creditor.
Second, calculating becomes simpler. Let's face it, one of the reasons why we delay doing taxes and managing bills is it's boring to look at long sheets of numbers. The task is tedious and time-consuming. Fortunately, you can completely remove the need for multiple calculations by combining all your debt under one account.
The overall goal of debt consolidation is to get a new loan account with significantly lower interest rates. So yes, you'll be able to save a lot on your interest payments in the long run.
However, be careful of the repayment terms. Drastically shortening your term length in exchange for a lower interest rate will inevitably increase the monthly amortization on your account. Proceed with the application if the dues only eat up a small portion of your income, but reconsider your options if they take up almost half of your household's combined income.
By itself, debt consolidation won't boost your credit score. If anything, the credit inquiry and new loan application would temporarily hurt your score—which is why consolidation isn't advisable for banking clients with a bad credit report.
What debtors get, however, is merely the chance to improve their credit scores through debt consolidation. After all, this is a debt refinancing strategy. Whether you improve your standing or not depends on how you follow through with the strategy.
Overall, the only way you'll be able to improve your credit score is to commit to your debt repayment plan. Don't miss even a single credit card monthly payment, and your score should return to normal after a few months. Then, by the time you've cleared your debt, your credit standing would have further improved.
Term versatility is one of the most significant advantages of debt consolidation. There are dozens of different loan accounts and policies on the market that offer varying features, so your repayment strategy heavily depends on your chosen plan.
For example, you can take out a consolidation loan with a shorter term length and higher monthly payment dues if your goal is to get a lower interest rate. On the other hand, those with limited cash flow can extend the term length and increase the interest rates a bit to drop their monthly amortization.
The average American household carries upward of $90,000 worth of debt. This amount is likely a combination of different loans, such as mortgages, student loans, car loan payments, unpaid credit cards, home loans, and personal loans. That means most debtors have to make multiple payments to different creditors every month, which is very inefficient and tedious.
It's easier to calculate dues and manage finances when you're directing payments toward only one creditor. Plus, you can reschedule payment collections accordingly. Nothing's worse than coming up short on payments just because your due date falls one or two days before you get your salary.
Not sure how to pay off multiple credit cards? Any Credit goes in-depth on the best way to clear credit card debt through proper money management and payment plans. Visit the Any Credit website for more information!
At the end of the day, getting a debt consolidation loan is simply one of the many debt management plans available.
There's no need to limit yourself to one strategy. Explore alternatives such as debt settlement, balance transfer cards, or personal debt repayment tactics. You can even invest in credit counseling to get a professional third-party opinion on which options would best suit your financial standing.
The overall goal is to find a debt management strategy that would help you get a better grip on your monthly dues. And hopefully, avoid having to file for bankruptcy.
Looking for alternatives to debt consolidation loans or for more information on how to manage your money? Any Credit explains the different strategies debtors can follow to achieve financial freedom as quickly as possible. Check out the Any Credit website to learn more!