Debt Consolidation - What Is It?
Debt consolidation is a process where a consumer takes out a new, low interest loan and then use sit to pay off their other individual debts. It can also be used to pay off a small debt in one go by taking another bigger loan. These include any kind of debts that you take from student loans, credit cards, personal loans, to auto loans and numerous others.
If you are struggling to remember your debts, their individual payment dates or your credit score has improved since you obtained the loans, debt consolidation can help you solve your issues. This can include everything from credit card balances, auto loans, student debt and other personal loans.
Debt consolidation reduces your monthly payments by streamlining your loans. Consolidating your loans helps you save on interest and finances the cost of small loans. You will only have to make one payment instead of multiple payments.
Can Debt Consolidation Be Applied To All Loans?
Debt consolidation can be categorized into two types:
Secure – this is a type of debt consolidation where the borrowed amount is secured to an asset. This could be your home, and if you fail to pay off the debt, you may end up losing your home.
Unsecured – this is a type of debt consolidation where the loan is not secured to any of your assets. Education loans, amount sowed on credit cards and personal loans are some examples of unsecured loans which can come under debt consolidation.
When and How?
Before taking a debt consolidation loan, you should get debt advice. Think about all the possibilities that might happen in the future that could stop you from repaying your debts.
Debt Consolidation Calculator
You can use a debt consolidation calculator to calculate and decide whether or not debt consolidation is good for you. You can fill in your outstanding loan amounts, credit card balances and other debts and check what the monthly payment would be with a consolidated loan. You can adjust the terms, loan types or rate until you find a debt consolidation plan that fits your goals and budget.
Consider All The Factors
When taking up a loan, it is important to keep up with your repayments. The interest rate may go high, you might lose your job, or it may be difficult for you to stop spending from your credit card.
There are some facts you should be considering when taking a debt consolidation loan. Consolidating debts only makes sense if:
· Your savings are not wiped out by fees and charges
· You are able to keep up with the payments until there payment of the loan
· You cut down on your spending and get them back on track
To conclude, debt consolidation can be helpful, but it is important you calculate and follow a debt consolidation plan to avoid problems for yourself in the future.