Debt consolidation offers clear benefits to anyone who is juggling multiple credit card payments and loans. The first most obvious benefit is the total savings over the term of the new consolidation loan due to lower interest rates. The second benefit is increased cash flow due to lower monthly repayments. These two primary benefits lead to secondary benefits that impact every area of a person’s life.
Debt consolidation is usually considered when people feel squeezed financially. It can often save them from financial disaster. However, debt consolidation should not only be considered as an emergency measure to resuscitate finances that have flat-lined (or for rescuing those that are about to), it is a strategy that should be considered by anyone with multiple sources of debt to reduce expenses and save money. The difference between consolidating or not consolidating debt could be your child having a college loan versus a paid education, driving a quality car versus a bomb, owning your home in twenty years instead of thirty or countless other possibilities. Even if you can easily cover all your debt repayments, your overall financial position can improve with debt consolidation.
For those who are enduring financial pain, however, debt consolidation can provide a much-needed miracle. It can take pressure off the finances by freeing monthly income and making it easier to cover current expenses. For many people, debt consolidation has prevented foreclosure on their family home and has stopped the debt collectors in their tracks. The decision to consolidate your debts could save your marriage and keep your family together. It could also prevent you or family members from becoming so stressed that you get seriously ill.
Even if your financial circumstances are not so severe, debt consolidation can increase your expendable income that can then be used to reduce debt faster, increase savings and investments or simply to improve the quality of your life. After all, doesn’t it make sense that more of your money should stay in your pocket and less go to financial institutions? The long-term savings in terms of interest payments can also be very significant and therefore your long-term financial position will benefit from effective debt consolidation. It is true that by consolidating your loans, your monthly expenses will decrease making payments easier.
The most popular way to consolidate loans is to use a personal loan. Personal loans are usually unsecured which means that you do not need to provide collateral to obtain the loan. They usually have lower interest rates than other consumer loans and fixed terms so that the debt will be finalized by a particular date.
Low rate credit cards and home equity lines of credit can also be used as debt consolidation loans. However, the risk with these loans is that you can increase your debt levels if the card has a higher limit than your current debt or at the very least spend up to the current limit. If you do this, you’ll never get out of debt. Even knowing this, if we are under financial pressure most of us will use whatever we can to alleviate it. Therefore, these loans are best used if the debt consolidation is for a specific and ongoing purpose such as medical or education expenses that could not have been met without the loan.
Of course, as with any financial decision, it is important to check into your options carefully. Some loans will be better than others for your personal circumstances. A good adviser can help you find the right loan to meet your needs and may even be able to advocate for you with your lenders to smooth the process and alleviate stress. Whether you choose to handle your debt consolidation yourself or to seek the help of a professional, the right debt consolidation loan will provide clear benefits that can vastly improve your life