● What does the term debt consolidation mean?
Debt Consolidation Loans are designed to merge all the debts with diversifying interest rates into a particular debt with a fixed rate of interest. Easy and comfortable to track, it is also useful in handling cases of personal loans for bad credit.
It is an excellent financial solution, just like any other personal loan. It might help a borrower to take better care/control of their bills. A set percentage of interest rate and set repayment date, allow consumers to effortlessly budget and plan their financial fate. Letting them feel empowered and motivated enough to stick to their repayment plan.
● How does it work?
Debt consolidation occurs when an individual is under various loan and debts. They are clustered together to a whole new unique figure that the borrower owes to diverse banks or credit cards. It is natural for someone to opt for various loans in the form of personal, vehicle, and education loans. Similarly, one might have several unpaid balances and might struggle to clear them off entirely. Debt consolidation allows that person to avail of a new loan which supports him to clear off all smaller loans.
● How is it a better solution?
● Effective in maintaining various debts
The reason why debt consolidation makes sense and is an excellent solution is that it makes life simpler. After a certain point of time, it becomes tough to keep proper track of all these distinct loans: EMIs, business loans for small business, their pay dates and above all the amount. Problems get complicated if you have several bank accounts and many EMIs linked to those accounts. A borrower has a combined responsibility in such a situation: of maintaining the funds in bank accounts as well as repaying the lend money.
● Debts with a high rate of interest are tackled, adequately
The second logic to why it makes sense as it reduces interest rates, reasonably. If you opt for a credit card debt consolidation, expect your interest rates to come down. Credit cards have some of the highest rates of interest, this process helps one to not only get rid of high-interest rates but to convert them into a much lower form.
● Difficulty in managing monthly payments are handled
While most banks provide debt consolidation, one needs to understand that there’s no separate service called debt consolidation mortgage/loan. As a borrower, it is reasonable to contact several banks with set conditions and they will then process your application. Get in touch with the bank official and select one that best suits and matches the requirement entirely.
● Clear huge bills by paying more
Making only small payments can result in accumulating, a huge quantity of debts and hence is a fast way to get into money trouble. The action is like a treadmill of giving money, but not gaining any substantial progress towards clearing off your bill. When merging debt, your loan provider may settle with lenders on your behalf to give you a more concrete interest rate or even take a lump out of your dividend upfront.
● Excellent in improving the credit score
A debt consolidation loan is excellent since it helps an individual to maintain a safer credit score as the person is not dealing with diverse repayments like repaying the amount in business loans for small business, etc. The chances of missing any return terms are reduced; being consistent with repayment of the sum is effective in improving the credit score.
● Things to consider before opting for the loan
However, before opting/acting ahead with the thought of consolidation, one should check if the resultant interest rates on this new loan are cheaper than the prime loans.
- Make sure to use this feature to the best of spirits, and own advantage! Debt consolidation is an excellent method to get a firm hold on multiple loans/debts, as one needs to deal with thoroughly.
- As a borrower, you should be very precise about the advantages it provides as opposed to the present loan structure.
- What is even more noteworthy is that debt consolidation is not a license to run up new debt.
- The whole purpose of debt consolidation is to overcome the stress of unpaid balances/loans on your credit card, as a borrower.
Soniya Sharma has been working as a professional charter account at loanClix – Best home loan finance company in India. She loves to share excellent stuff about home equity loan, low-interest personal loans etc. You can also follow her on various social media platforms such as Twitter, Facebook.