In today's day and age, debt seems to have become just another part of growing older. From student loans to mortgages and simply financing larger purchases, we all need to borrow money at one time or another. Acquiring a loan can be easy, but with interest rates higher than ever before it can be a real burden to pay that money back.
After some time, all of these debts can begin to pile up leaving you with a group of large monthly payments and plenty of interest. Thankfully, we all have the option to consolidate our debts into one lump sum. In order to figure out if this is the right decision for you, it's important to learn the pros and cons of loan consolidation.
Choosing to consolidate your debt comes with a variety of benefits. Each of which can help you to become debt free even faster.
All of your current monthly payments are turned into one, new monthly payment. When you add up how much you owe towards your debts in a month, it can be a little intimidating. Opting to consolidate those debts can help make things easier by giving you a lower monthly payment on the whole sum.
Eliminating multiple APR rates. Each debt you owe has it's own interest rate, and those can be incredibly high for credit cards, mortgages, and student loans. Bundling these debts into one larger loan offers you a new, single interest rate. Often times, these are 10% lower than any you have paying.
A steady plan to becoming debt free. With fixed rates, you know exactly what you will be paying each month. The lower payments and APR rates will help you to pay off your debt faster than paying each one separately. This also helps to alleviate stress in the situation.
Boosting your credit. Consolidating your debts helps you stay on top of them. This will help you to avoid missed payments and defaulted accounts that can have a devastating affect on your credit score. This will also help you to avoid bankruptcy.
Nothing is without its downsides. Each method has it's drawbacks and benefits, but there are some general cons to be aware of.
Digging the hole deeper. Some form of consolidation set your credit cards back to a zero balance, allowing you to use them again. Resist any and all urges to do so, or open up a new account. It's certainly tempting, but there's no point in racking up more debt when you are working to eliminate it in the first place.
Failing to stick with the payoff plan. It's important to make all of your new payments on time. Failing to do so can really damage your credit score, and may incur additional fees or even added interest. Sticking with your payments is sure fire way to make eliminating your debt easier.
All Things Considered
When it comes to realizing your dream of finally being debt free, choosing to consolidate your debt is a very beneficial way to achieve your goal. You'll save money in the long run as well as avoid additional debt incurring with lower monthly payments and lessened interest rates. It is also a great option to keep your credit score high, or bring it back up and set your FICO score back on track.
While there are pitfalls to be aware of, the good certainly outweighs the bad. Things like student debt, car loans, mortgages, and credit card bills can all pile up before we know it. With debt consolidation, you make a plan to get ahead and stay ahead.
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