What is Debt Consolidation and Is It a Viable Option For Me?

The digital age has made it easy for people to access a wide array of financial services and assistance anywhere in the world. Our global economy is transitioning at a fast rate guided by the principles of Financial Inclusion where opportunities to financial services are made available to ALL. These includes banking, loan, equity and insurance products.

That is why, getting funded is really a walk in the park these days, but paying it all back, now that’s a different story. And this is where Debt Consolidation takes centerstage.

What is Debt Consolidation?

By definition, Debt Consolidation is the act of taking out a new loan to pay off other liabilities and consumer debts. Combining multiple outstanding debts into a single loan that is supposed to have a much lower interest rate, lower monthly payment, or both. Your overall monthly payment is likely to decrease because future payments are spread out over a new and, perhaps extended, loan term.

Debt consolidation is usually a good idea for borrowers who have multiple high-interest loans that are hard to keep track. This process is also aimed at improving your credit score by reducing the chances of you making late payments on different loan schedules or missing a payment entirely. Plus you’ll have a better idea of when your debt will be paid off completely.

However, paying off multiple debts via debt consolidation is not an opportunity or an excuse to run up your balances again because that may lead to more substantial financial issues in the long run.

Bottom line is, you should remember that debt consolidation don’t erase the original debt. They simply transfer your loans to another lender or to a different type of loan.

Debt Consolidation Loan

There are actually two ways you can consolidate debt, both of which has the advantage of combining all your pre-qualified debt payments into one monthly bill.

Credit Card Balance Transfer

Some credit card company offers 0% interests on balance transfers. This will allow you to transfer all your debts onto a new card and pay the balance in full during the promotional period. The primary requirement is a good or excellent credit score.

Debt Consolidation Loan

Basically you acquire a Debt Consolidation Loan to get the money that you need to pay off your outstanding debt, then pay it back in installments over a set term and with a fixed rate.

There are many lenders that offer Debt Consolidation Loans – both secured and unsecured. The difference is that Secured loans, usually offered by traditional banks, requires a collateral while unsecured loans are not backed by assets but may be more difficult to obtain and sometimes with
lower qualifying amounts and a much higher interest rates but are still typically lower compared to what credit cards are charging.CLICK HERE TO LEARN MORE

Advantages of Getting a Debt Consolidation Loan

In a nutshell, Debt Consolidation Loans offers you a free hand or more room to manage you finances and debts. Here are some of the benefits of getting one:

Helps you pay off your debts quicker

Paying off only the minimum monthly required payments on your credit cards can stretch actually stretch the repayment timeline for years. Debt consolidation loans offers you a more convenient way by fast tracking payments on your existing debts.

Helps you simplify your monthly payments

Tick off only date every month in your calendar. It’s easier to manage one monthly payment schedule than multiple payments with different due dates. This reduces the chances of you missing out on payments.

Helps save you money on interest rates

Debt consolidation loan is a great tool for people who have multiple debts with high-interest rates or monthly payments. Generally, if you qualify for a lower rate than what you’re paying now, you’ll save money on interest costs.

Know when your loan payments are going to end

Debt Consolidation Loans are usually fixed installment loans, unlike credit cards that always keep you guessing. This means you’ll know exactly when you’ll be debt-free. Which is supposed to be the goal and indirectly your motivation for getting your debts consolidated in the first place.

How To Make a Debt Consolidation Loan Work For You

This is not easy money, so there’s going to be a lot of commitment required from you.

What are my options? You may start by getting a list, compare quotes from multiple lenders and assess your chances for loan approvals. A strong credit score is your best chance of getting the most out of a debt consolidation loan – gives you power to negotiate better terms and lower interest rates.

Choose what’s best for you. Before getting a loan make sure that you have reviewed everything – interest rate, fees, loan term and monthly payment. It’s like shopping for the best deals and the goal is to save you money.

Discipline. Once you get your loan approved, make sure that all your original debts are fully paid. Commit to pay your new monthly loan on time and you can be sure to be debt-free in no time.