Breaking Down the Benefits of Debt Consolidation Loans
It's a reality that most households have credit-card debt that can grow as high as $8,000 or $10,000, reports Forbes. Consolidating that debt has now become a priority for many consumers. Debt-consolidation loans are clever pathways to a clean, credit history. Explore the benefits that go along with these loans so that you can reduce your debt today.
Improved Credit Score
One of the most obvious benefits of a debt consolidation loan is your improved credit score. Presumably, you've had trouble paying your everyday bills with a few late payments in the mix. By consolidating the debt, you're paying off those creditors and creating a new account. Paying off any debt positively reflects on your credit history. Although it's the consolidation company that's doing the paying, it still shows as your balance that's paid off. You now owe only one creditor. That fact reflects on your credit history at this point.
Simplified Payment Process
Many consumers have more than five credit cards. Couple this debt with other bills, such as electric, gas and student loans, and you have a lot of payments to keep track of each month. Consolidate your debt and notice the benefit of simplicity. You have one payment instead of multiple types. There's no confusion over due dates either. In fact, you may have an automatic payment taken out of your checking account each month. This convenience alone is enough to motivate you to obtain one of these loans as soon as possible.
Reduced Psychological and Physiological Problems
Debt that numbers in the thousands of dollars can generate a lot of stress. Your mind and body take on stress that's not necessary. You may not realize the stress is taking such a toll until you become ill. Taking control of your finances gives you a chance to breathe deeply about your monetary position. You'll have a clear mind to plan out what you'd like to do later on in life. Creating a budget and sticking to it is a possibility when you have a reprieve from collection calls and high interest. The reality of your situation becomes easier to deal with as you gain insight into your spending and saving habits.
Lowered Interest Rates
Your current, unsecured debt might have an interest rate of more than 20 percent. This incredibly high number only multiplies the debt that you have each month. A consolidated loan will typically have a much lower rate than your current situation. It's based on several factors, including your ability to pay the amount. Lenders need some payment for the loan, and you'll see some interest that might hover around 10 percent or lower. Use the loan as a way to pull yourself out of debt. Don't spend more than you make at this point so that you can be debt free.
Increased Credit Availability
A major benefit of a consolidation loan is your freed credit. With a loan paying off those credit-card accounts, you suddenly have a lot of available credit. Your credit history and score will improve with this facet to your accounts now available. However, don't start spending. If you had trouble before with the debt you have now, shopping should be the last thing on your mind. Allow the freed-up credit to reflect that you're a responsible spender. Your credit score will rise as a result of your efforts.
Paid Off at Rapid Pace
A secret that very few people know about is the fast payoff. Your previous balances may have had 10 or 20 years to go until they were close to being erased. Consolidated loans have a shorter time period. You're able to pay off the amount in less than 10 years. Every loan length is different. It's based on the amount owed, current interest rates and other factors. You work with a dedicated representative who can guide you through the consolidation process. Ideally, they work with your income and current liabilities to create a payback schedule that's realistic.
There are many debt-consolidation loans available in the marketplace today. Research each type so that you know what you're committing to, states Discover. With the right plan for your unique needs, debt can be erased in little time. Your financial future is important to preserve.
Join the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom.