Benefits of Debt Consolidation
Whether you are teetering on the edge of bankruptcy or just trying to better manage your finances, you can’t help but notice all the advertisements touting debt consolidation. However, is debt consolidation a good option for you? With debt consolidation, you get a single loan to pay off all of your smaller loans, thereby leaving you with just one monthly payment rather than several. The theory is that one payment is easier to manage. The goal is to lower the interest rate and the monthly payment while paying off your debt more quickly. Here are four benefits of debt consolidation.
- Single Payment
By using a debt consolidation loan or a cash-out refinance, borrowers are able to consolidate everything into one single source. Instead of having to worry about multiple payments and multiple deadlines, they can simply make one payment every month toward their debt.
- Lower Interest Rate
A major reason individuals opt for a debt consolidation loan is to eliminate credit card debt. Credit cards tend to have higher interest rates compared to other loan products. By securing a debt consolidation loan, borrowers might be able to save money monthly and over the life of the loan.
- Credit Score
Taking a personal loan to pay off debt may improve credit scores. By paying off credit cards, the utilization ratio would go down, possibly causing the credit score to go up. It is imperative to make sure payments are made on time and no new debt is racked up on a balance-free card.
- Stress Reduction
Financial burdens can cause stress and may lead to various personal issues and possibly physical problems. By consolidating and managing debt, people may enter a better financial situation. Causing less stress and more time to focus on other matters.
Don’t be fooled into thinking that debt consolidation is right for everybody. Before you make a final decision, consider the pros and cons and speak with a financial counselor to see if debt consolidation is right for your situation.
