What are the Benefits of Debt Consolidation?
If you have several credit cards and other forms of debt, consolidating your debt into one convenient place can be a great way to save money and make your life a little easier. Consolidation can also help get your finances in shape and boost your credit score. If you’ve been considering merging your debts into one convenient location but are still unsure about it, here are 5 reasons it might be a good idea!
Lower Your Monthly Payments
Debt consolidation rolls multiple debts, typically high-interest debt such as credit card bills, into a single payment, which might be a good idea if you can get a lower interest rate. That will help you reduce your total debt and reorganize it so you can pay it off faster. Also, consider how much easier it will be to make one payment compared to the number of payments you’re currently making!
Pay Off Your Debt Sooner
For many people, consolidation reveals a light at the end of the tunnel. If you take a loan with a three-year term, you know it will be paid off in three years — assuming you make your payments on time and manage your spending. Conversely, making minimum payments on credit cards could mean months or years before they’re paid off, all while accruing more interest than the initial principal.
Save on Interest
You’ve probably noticed that each of your credit cards and loans comes with a different interest rate – and some of them may be very high. A debt consolidation personal loan may come with a lower annual percentage rate (APR) than your existing credit cards and other loans. You’ll likely pay less total interest over the life of a personal loan compared to the total interest you have to pay on your credit cards each month on an ongoing basis.
Make Your Life Less Stressful
Debt consolidation can bring peace of mind because managing your finances is much easier when you have a single monthly payment. In addition, you’ll get to deal with one understanding financial institution – such as your local credit union – instead of dealing with multiple creditors and lenders.
Boost Your Credit
A good credit score is key to unlocking low-interest rates and generous loan amounts. Luckily, debt consolidation can help improve your credit! If you pay off one or more of your credit cards, you can keep that account open with a zero balance, which will give you a great credit utilization rate or debt-to-credit ratio, which is an important factor in determining your score. Also, keeping your accounts open means you’ll extend the amount of time you’ve held credit, ultimately boosting your score.
Benefits of Debt Consolidation: Next Steps
There are a few financing options to choose from when considering how to consolidate your debt. If you’re a homeowner, you might explore a home equity loan or home equity line of credit (HELOC). You could also consider doing a credit card balance transfer, which involves transferring your debt to a credit card with better terms and rates than what you have now.
That said, a personal loan or specific debt consolidation loan might be the most straightforward and convenient option because you can decide your loan amount and how long you have to pay back the money. Debt consolidation should make your life easier and more enjoyable!