In today’s world, you can see many people having debts and are finding it difficult to manage. We also know that the interest rates for these debts are also higher and having multiple debts means you pay more than required along with the interest. In such a situation, debt consolidation can help you lower your amount a bit. Here’s how!
Many people are just tired of paying the money to lenders along with interest and that is why they chose to consolidate all their debts instead of paying for different cards or loans. So, if you are one of them who is looking for debt consolidation, then here is everything that you need to know about it.
What is debt consolidation?
Debt consolidation allows you to consolidate all your different credits or loans into one payment (especially the ones with higher interest rates). It is something better for you as you will get to pay debts with a lower interest rate and that too at a faster rate.
For people who are still in the dilemma of having so many different credits and want to re-organize multiple bills, interest rates, payments and due dates then debt consolidation is the best option for you.
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How can you consolidate the debt?
There are two different ways to work towards consolidation:
- You can get a 0% interest credit card balance transfer. In this, the interest rate will be zero but you will have to pay the whole balance during the promotional period. But in this case, you will need to have a good credit score i.e. 690 and above.
- You can get a fixed rate of interest on debt consolidation loan. In this, you can get a fixed rate loan and you can repay your debt with this loan amount. Later you can pay off your loan in instalments over the set term. This is good for people with bad or lower credit scores (689 or below).
What are the advantages of consolidating debts?
Firstly, you need to understand if debt consolidation is a good idea for you. For this you will have to see the following things:
- Do you have multiple high-interest rate loans? (Which includes personal loans, school loans, credit cards etc.)
- Has your credit score improved after applying for original loans?
- Is your debt 40% lesser than your gross income?
- Do you want to make that one monthly payment towards your debt?
If you fall under all these categories, then debt consolidation is a good idea for you. so here are the advantages:
- You will be able to organize all your debts in case you got multiple payments to look at.
- You will just have one interest rate to look out for which could be easier for you to track
- In a long term, this will help you improve your credit score.
Thus, consolidating debts will help you reduce debts, but remember to avoid taking too much loan which you cannot repay.