Many of us have multiple debts to repay, and you may have come across the idea of loan consolidation.
If you’re not quite sure what loan consolidation is, read on to discover all about consolidation loans and how they might be useful for managing your debts.
Loan consolidation is when you combine several smaller debts under a single, larger debt.
Doing this can make managing repayments more straightforward, and if the right consolidation loan is chosen, can lower your interest rate, total monthly repayment amount, or both.
There are a few ways to consolidate your current loans into a single repayment:
You can consolidate most types of debt into a single loan. This includes credit card balances, existing personal loans, home loans, car loans and potentially even debts handed to a debt collection agency.
Moving multiple debts into a single consolidation loan can offer a number of benefits.
Not only is it easier than juggling a number of repayments each month, you only have to deal with one lender. With only a single interest rate and single set of loan fees to consider, you are in a better position to budget accurately.
Beyond convenience, the biggest benefit of loan consolidation is the potential financial savings. By moving your debts to a single loan with a lower-on-average interest rate, you can cut a significant amount from your total interest paid over the life of your debt.
Once you have been approved for a consolidation loan, it is important to ensure you make your repayments on time, every time to avoid potential fees and defaults which can harm your credit rating.
If you choose a credit card balance transfer, discipline is paramount! Your previous balances will be cleared, which means you will have credit available, which can be tempting to use.
But remember that this will only deepen your debt and renew the debt cycle. Consider closing your previous credit cards to avoid this trap.
Creating a reasonable budget that allows you to maintain an enjoyable lifestyle while getting out of debt will set you up for financial success.
Seek financial advice and begin your debt relief journey now.