Many people juggle repayment of auto loans, student loans, credit card loans all at once and mostly miss or have a problem tracking their monthly payments plan. Through debt consolidation, they will have the opportunity of streamlining all their debts into one place while also maintaining a single payment, easy to track at the end of the month.
Before dabbling into getting debt consolidation services, know that they don’t actually fix your financial challenges but may improve your monetary prowess. Hence, why you have to understand everything that comes with debt consolidation.
What you will come across in this post;
What is debt consolidation? Benefits of debt consolidation Types of debt consolidation.
What Is Debt Consolidation?
Debt consolidation refers to the process of paying off multiple debts with a new loan or a process of a balance transfer card at a lower interest rate. It rolls multiple debts into a single balance making it very easy to enable you to keep track of your finances.
Instead of paying multiple bills in a month, with debt consolidation, you only need to think about one monthly payment.
Benefits Of Debt Consolidation
Below are the benefits of debt consolidation
Single Monthly Payment
Having multiple debts means, keeping a tab of different due dates, courses of payments, and different minimum payments. With debt consolidation, all your loan repayment issues will be put under one single repayment per month. This helps you to simplify your loan repayment.
Reduce Interest Rate
Most of the time, you find out that after paying part of your loan for some time, all you’ve paid for are just the interest and not the principal. What this means is that there might constantly be an increase in the balance which you will be unable to keep a tab of. Debt consolidation will help you lower the interest rate and make payments seemingly easy.
Repay Debts Faster
It could take you 15 – 20 years to repay some of your loans. Debt consolidation can help you eliminate your debt within three to five years.
Improved Credit Score
Debt consolidation will allow you to make the loan repayment on time will increase your credit score.
Types of Debt Consolidation
Below are the options open for you to consolidate your debt.
Debt Management Plan
The purpose of a debt management plan is to help you reduce the interest rate to pay, lower your monthly payments and eliminate debt faster.
These plans are offered by nonprofits credit counseling agencies who liaise with credit card companies to arrange for an affordable monthly payment for the customer. You send the monthly payment to the agency who will then disperse it to the credit card companies as agreed until the debt is fully repaid.
A personal loan is a form of debt consolidation loan that could come from a bank, credit union, lender, or family. Personal loans are mostly unsecured, this means that the borrower doesn’t put up any collateral and may result in a high-interest rate.
Debt settlement is always the last resort in debt consolidation. It is a process whereby you or the company you hire will ask the credit card companies to pay less than you owe, sometimes 50% less than you owe. Also, debt settlement prevents you from receiving harassing calls from debt collectors and could also keep you out of court.
This may look great but you must have a lump sum amount of money to settle the debt and may as well be difficult for you. Also, it will have a severe effect on your credit score for up to seven years.
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