The pros and cons of rolling your debts into one
Debt is not only a money issue, it can also affect your quality of life. It can very quickly snowball until the size and terms of debt can leave you feeling overwhelmed and hopeless about ever leading a debt-free life.
Debt is ugly and stressful – but the good news is, there is always a solution. While it might not feel like it right now, you can get your finances under control.
To tackle your debts, you might want to consider a debt consolidation loan. Here we take a closer look at debt consolidation – and how it can help ensure that your dream of owning your own home becomes a reality.
What is debt consolidation?
You might have a wallet full of maxed-out credit cards plus car, wedding and/or personal loans. That’s a lot of creditors to keep track of – and too many minimum monthly repayments.
When you consolidate debt, you’re taking out a new loan that wraps all your existing debts together for you to pay off at once. It streamlines the payment process by combining multiple types of debt, and if you’re able to secure a debt consolidation loan with a lower interest rate, you might even be able to pay off the debt faster.
When done correctly, debt consolidation can be a powerful tool for getting out from under the heavy burden of debt. But it does mean you need to take care not to run up your debt again – leaving you in worse shape than when you started.
Here’s what you need to understand about debt consolidation, before deciding whether it’s the right path for you.
- One monthly repayment. Budgeting is easier to manage with only one loan, carving a clear path to becoming debt-free.
- Lower interest rate. You’ll pay off your debts that much quicker.
- Peace of mind. Reduce the stress of dealing with multiple loans and potentially falling behind in your repayments.
- Fewer missed payments, late fees and extra charges. With one easy-to-manage repayment, you’re less likely to default or miss a payment – and incur late penalties.
- Improve your credit score. A debt consolidation loan will appear as a new line of credit. You’ll also be able to cure any defaults and pay off multiple creditors at once – which shows you’re working towards a more positive and financially stable future.
- Take back control of your finances. A streamlined payment process will make you feel more in control of your financial future – and set you on the path to good financial health.
- You fail to change your spending habits. You need to be disciplined – cancel your credit cards, and don’t accumulate more debt, or you’ll find yourself in worse trouble.
- Your credit score might suffer in the short term. Consolidation is seen as a ‘hard check’ on your credit report.
- You’ll pay loan establishment fees again. Taking out a debt consolidation loan adds another set of fees, which could cost hundreds of dollars.
- If you’re not careful, you could end up paying more. Debt consolidation loans can lower monthly payments, but that can sometimes mean paying more interest in the end.
Focus on getting rid of existing debt
Everyone who has debt is eager to get it paid off as quickly as possible. The first step is understanding what debts you have – debt problems only get worse if unacknowledged and unresolved. Debt consolidation is largely risk-free, has a number of benefits and cuts down stress and paperwork. Like all loans, there are risks, but you can reduce those by shopping around for a debt consolidation loan that works for you. It’s for these reasons that many people choose debt consolidation as a way of achieving financial security and freedom.
Are you ready to take control of your debts? Talk to the Global Finance team today.