Understanding Debt Consolidation Loans
If you currently owe money to several different lenders––credit cards, store cards, short-term loans––a debt consolidation loan may help you gain control of your financial troubles.
Debt consolidation allows you to combine all your smaller loans into one big loan, creating a simpler, workable solution to an out-of-control debt load.
The Problem with Multiple Loans
By consolidating all your individual loans, you can reduce numerous payments into one. Multiple payments means multiple due dates to keep track of. If you miss one, you’re charged with expensive late fees––and if your money is going to pay late fees to your creditor, it’s not paying off your debt. Over time, making multiple late payments will also negatively affect your credit score.
Another reason to consider consolidating your loans is the amount of interest you are being charged each month. Store cards and credit cards have notoriously high interest rates, so if you carry your debt from month to month, a good portion of your payment is being used to pay interest charges.
The Benefits of Consolidating Your Debt
A debt consolidation loan may help solve these problems. Your many, individual loans become one bigger loan, leaving you with a single payment each month. Sometimes debt consolidation lenders can negotiate with your current creditors to reduce the amount you owe, reducing your overall debt. They will also structure the loan to create a workable monthly payment that fits within your budget.
You will be charged an interest rate for the consolidated loan, but it will likely be much lower than credit card or store card rates, saving you money in the long run. And as long as you make your payment on time, you won’t be charged any late fees (something you can manage by arranging an automatic withdrawal each month from your account).
A smaller overall payment combined with a lower interest rate means you’ll be able to pay off your debts more quickly. And if you meet all the obligations of your loan, by the time it’s paid off, you’ll have gone a long way toward repairing a negative credit history.
Debt Consolidation May Work for You
If you find yourself swimming in debt, with multiple loans and high interest rates, a debt consolidation loan could be the way to simplify your budget, pay off your creditors, and gain control of your financial future.