Benefits of consolidating your debts
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Debt consolidation is a way of paying off your consumer debts, often by taking out a new loan with a lower interest rate. By combining multiple high-interest loans and paying them off, you’ll potentially save money and reduce the number of debt obligations.
Some firms offer debt consolidation services where the borrower doesn’t have to borrow a new loan. This is often common with payday loans; hence it’s called payday debt consolidation. Here, a specialized debt consolidation firm comes in to negotiate better terms and affordable repayment plans with your current lender(s).
Whether you prefer taking out a new loan to repay smaller loans or managing your existing loans with the help of a debt consolidation firm, each technique has its own advantages. We’ve rounded up the three main benefits below.
1. It helps lower interest rates
Most debts, especially credit card loans, have high-interest rates, which could significantly raise the total amount you owe the lender. Consolidating your debt affords you a lower interest rate, especially if you have an excellent credit score.
By paying off all the high-interest loans such that you only have one low-interest loan to service, you will have saved a lot of money in the long run. This is also true if you negotiate for an affordable repayment plan. However, not all loans are the same. Some like bridge loans may have high-interest rates, yet consolidating them can be difficult.
2. It simplifies your finances
Once you consolidate your debts, you will no longer have to worry about the many due dates for each of your debts since you only have one obligation. Additionally, the payment amount will be the same each month, making budgeting easy.
Having all your loans consolidated also makes you more financially organized. It also reduces the odds of you making a late payment or missing to make payment. You can also choose to raise the amount you pay every month towards the debt, allowing you to be debt-free early.
3. It improves your credit score
Taking a debt consolidation loan lowers your credit score the initial moment you apply for it due to the hard credit inquiry process. However, it will boost your credit score in the long run.
That is simply because the debt consolidation loan will help you compress all your loans into a bigger one, making it easier for you to pay the loan on time. Paying off credit cards loans also improves your credit utilization ratio and, in turn, improves your credit history.
An impressive credit score allows you to qualify for low-interest loans in the future. You may be eligible for some online installment loans with a bad credit score, but the interest rates may be quite high, and the principal amount will also be limited.
Endnote
For most borrowers, debt creates an overwhelming state internally. Consolidating your debt means you have better control over your debts and overall finances. As stated earlier, you can also manage your debts without taking on another loan. This is the case if you have only one or two loans with relatively low rates.
Some companies, such as Real PDL Help, specialize in credit counseling and debt relief, helping you a lot in the long run. The goal is to negotiate lower fees and rates with creditors while getting you an affordable repayment program with one monthly payment over a given period.
The option to borrow a low-interest loan to repay smaller debts or partner with a loan consolidation firm to negotiate an affordable repayment program for your payday loan depends on your unique needs. Be sure to consult a financial adviser before making up your mind.
