4 Financial Perks of Debt Consolidation

You may have a lot of outstanding debts and are finding it increasingly difficult to fulfill your obligations to them. Conversely, you may have a lot of debt and have been managing it ok but are sick of making payments with high interest rates and not making any progress.

Either way, your outstanding debt is causing you noticeable stress and preventing you from doing the things you want to do. If this sounds familiar, below are reasons why you may want to consider consolidating your debts. Doing debt consolidation may be just the key to putting you on the path to the financial freedom that you seek.

1. Lower payments

A large majority of people have debts such as mortgages, vehicle loans, personal loans, and lines of credit. While individual payments may seem low and manageable, added together the amount of money that you put towards these things can be overwhelming. This is mainly due to interest rates and the minimum amount owed per month.

Consolidating your debts consists of bringing them together under one loan. As a result, you will have one payment to make per month with one interest rate. Because you will not be obligated to make minimum payments on all different accounts, you will be making one and it will be noticeably lower. As a result, you will be increasing your cash flow and will be able to put some into savings or buy other things that you may need.

2. Lower interest rate

Interest rates on mortgages and lines of credits have been low for quite some time, usually hovering around 3 and 6 percent respectively. However, other loans such as credit cards can have interest rates anywhere from 9 to 29 percent.

When interest rates are high, your payments largely goes towards it instead of the principal amount. This means it will take you significantly longer to pay off the outstanding amount. Consolidating your debt usually means paying around 6 to 10 percent which will be lower than most loan and credit card interest rates. As a result, more of your payment will go towards the outstanding amount and you will get out of debt faster.

3. Unaffected credit rating

A credit rating is a score assigned to a person that reflects his/her ability to fulfill the terms of a loan based on past performance. Therefore, if you ever want to get a mortgage, loan, or credit card, your credit rating needs to be high.

Many poor credit scores are the direct result of people taking on more debt than they can take on and either missing payments on them or defaulting altogether. Consolidating your debts will bring everything together under one payment. In doing so, you will make it easy to pay back your loans and either sustain a good credit rating or improve a lower one.

4. Easier budgeting

When you have many outstanding debts, it can be hard to keep track of them at times. This is because all of them may have different minimum payments and are due at different times of the month. Therefore, you need to take advantage of any way to make it easier. A missed payment could result in a dip in your credit score or a default if it happens regularly.

When you consolidate your loans, you will not have to be concerned with different payments on different dates. Instead, one payment will be due monthly. These days, you can even arrange to have it withdrawn automatically, allowing you to rest assured that you have fulfilled your obligations to the loan.