Finding yourself with a number of outstanding debts to a number of different lenders can be extremely stressful. It’s not a position anyone wants to find themselves in, yet it can happen to anyone at any time in their life.
Life is full of unexpected surprises that can come in the form of expensive school fees, falling sick and paying for hospital bills, or getting in an accident and forking out money for repairs. The debts can pile up and when you’re trying to make different repayments to different lenders, it can get confusing.
As a result, you may find yourself getting further and further into debt with no clear way out. This is where debt consolidation can come into play. It’s a great way to get on top of your debts and help manage them in a productive way. Find out what debt consolidation is below and learn about the benefits of consolidating debt.
What is debt consolidation?
Before we look into the benefits of consolidating debt, it’s important to understand exactly what debt consolidation is and how it works.
Debt consolidation is the process of combining all your debts into one. This is generally done by taking out a whole new loan to pay off all your other loans. As a result, it leaves you with just one loan to chip away at.
If you already have multiple loans, you understand just how challenging it can be to keep on top of them all. With different interest rates, different dates the repayments are due and different amounts, it can very confusing to get on top of. It’s almost impossible to budget and you find yourself getting into more and more debt.
By consolidating debt, all of your repayments are brought together and along with that comes many benefits.
Benefits Of Consolidating Debt
- Lower your interest rate: when you have multiple debts they all come with different interest rates. Some of these are higher than others and you can end up paying more in the long term than you ever predicted. Consolidating your debts into one gives you the opportunity to obtain a lower interest rate and pay off less money in the long run, which is a huge benefit.
- Budget: budgeting is one of the best ways to see yourself out of debt, but it’s hard to do when you have so many competing debts. But by rolling all your debts into one, you have the opportunity to budget the repayments each month and plan your spending. This way you can ensure your repayments are never missed and you get the loan paid off in no time.
- Credit score: missing repayments can also negatively impact your credit score and bring it down. This, in turn, makes it harder to take out any future loans. By budgeting your repayments and ensuring they are made on time, you have the added benefit of raising your credit score in the process. You can set yourself up as a reliable lender.
- Flexible payments: when you consolidate your debt, you can decide when you want to make the payments. That could be weekly, fortnightly or monthly to suit your budget.
- Choose the loan term: at the same time, you also have the opportunity to choose the term of your loan. This means you have an end date in sight of when your loan will be paid off and you will find yourself debt free. This gives you something very clear to work towards in the process.
These are just some of the benefits of consolidating debt.
Setting Up A Debt Consolidation Loan
The process of setting up a debt consolidation loan is straightforward. Firstly, you have to work out how much you owe in debt and how much you’ll need to take out to cover it.
Most financial institutions offer personal loans as a way to consolidate debt. You have the choice of an unsecured personal loan or a secured personal loan.
- Unsecured: this is where you offer nothing up against your loan. It means all the risk is taken on by the lender. In these situations, you tend to pay more interest to offset that increase in risk.
- Secured: with a secured loan you offer up an asset as collateral against your loan. This means you’re taking on the risk and your asset can be seized if you fail to pay. As you might expect, this type of loan comes with a lower interest rate.
As you can see, if you go with a secured loan then the benefits of consolidating debt are much greater.
Taking Out A Loan
Are you looking to take out a debt consolidation loan? Speak to the experienced and professional team at Debt Consolidation today. They will be able to find the best loan for your needs and get you started on the path towards becoming debt free.