Is it a good idea to consolidate debt?
Debt consolidate is a credit repair service that allows you to take out a single big loan to pay off all your other smaller loans.
Basically, when consolidating debt, it’s like you are paying off your other loans with a single, bigger loan, which has different loan terms. Technically, though, your loans aren’t actually consolidated; rather, it’s only the payments that are merged. Still, this allows you to change the payment terms of your loans.
It’s a great reason for when to consolidate debt. For one, payments become easier. Instead of making several payments, you only need to make one. It also allows you to change your debt’s interest rate and monthly payment terms.
But as with most financial products, debt consolidation is not a one size fits all solution for credit or financial problems.
So when is this service a good idea? Here are reasons when to consolidate debt:
1. Interest rates are too high
When you consolidate debt, you are still paying off the same amount of debt. The payment terms, however, are different — which means you can get to save money when the interest rate of the new loan is lower than the rates of your previous rates. Debt consolidation is a chance to get cheaper interest rates. In addition, it is also a good opportunity to eliminate the annual fees of your loans. Most banks and financial companies charge fees for your loans; for instance, credit cards have annual (or even monthly) fees for using the service. You eliminate these consolidating your debt, combining everything into one convenient package.
2. Difficulty managing debt
Consolidating debt is convenient because you will only need to make one payment for all your loans and credit obligations. It helps you manage your finances since you only worry about a single payment (hence reducing the chance of forgetting your monthly payment due date). This prevents confusion; having too many bills, after all, can make keeping track of your payments and obligations more difficult. It will also allow you to make a smaller payment every month compared to when your debt isn’t consolidated. Your payment period may become longer but it is more realistic, especially when you are having problems managing your finances. When everything is one, convenient package, it makes getting out of debt so much easier.
3. Bad credit score
When you manage your finances properly, you end up having a better credit score. Paying off several loans may affect your credit history — which will adversely affect your credit score. You will also run the risk of missing payments for many reasons, whether practical or financial. With debt consolidation, you can easily make your monthly payments, which will ultimately help improve your credit score.
4. Turn credit card debt into personal loan
Credit card debt is a good consideration for when to consolidate debt. This kind of debt is tricky — and, in the long run, quite problematic. The longer you keep the debt, the higher the interest rate becomes. Consolidating credit card debt may be more practical and convenient in the long run.
When should you consolidate your debt? Join the discussion at debtconsolidation.loans. There are also great tips on how you can live on a budget on this page: http://www.aarp.org/money/budgeting-saving/.
Should you consolidate your debt? There’s a good solution that fits each of us and at debtconsolidation.loans, we teach you how a debt consolidation loan can benefit you.