Debt can place severe limitations on our lives. For many, merely keeping on top of minimum monthly payments represents a profound struggle, and the burden it places on you, your finances, and your lifestyle can take a severe toll.
But, as with many things, facing the issue is much better than ignoring it. Not only is it beneficial to your current finances, but consolidating your debts and paying them off in a way that is viable for long-term saving with also help you to secure your financial future.
Read more about debt consolidation below, and whether or not is it time for you to consider restructuring the way you pay off your debts.
What is Debt Consolidation?
Consolidation your debts is the process of combining your existing debts under the umbrella of a new loan. As such, you will only make one repayment each month, under one interest rate, instead of multiple repayments on multiple loans, each with their own interest. and will work toward paying off that new loan and ridding yourself of those debts for good.
Student loans are one of the most common causes of extreme debt in the US, alongside medical bills, which are thought to be responsible for more than half a million families being forced to declare bankruptcy every year. Consolidation offers an alternative, and helps to avoid the difficulties that arise from bankruptcy.
How Do I Find the Right Debt Consolidation Loan?
There is no universal ideal for loans. You should take the time to review the best consolidation loans available to you. The right one will all depend on your financial situation, the level and scope of your debt, and your credit score. Give yourself plenty of opportunity to compare the APR, repayment plans, and loan terms offered by multiple lenders before committing to a consolidation loan, and ensure that your budget can comfortably afford the new loan.
Why Do People Consolidate Their Debts?
Managing the repayments on multiple debts places a significant burden on your finances. Between interest, additional fees, and even just meeting the minimum repayment amount each month, it’s incredibly easy for borrowers to feel overwhelmed, and forced to stretch their paycheque very thin each month just to keep their heads above water.
Of course, this makes it difficult – or impossible – to have any money left to put towards other essentials, let alone to invest a healthy amount into their savings account. As a result, more than half of Americans do not have enough in the account to cover an unexpected emergency, such as illness or job loss.
Is It Right for You?
Debt consolidation offers an invaluable lifeline to many people, but one of the most important factors to consider is whether or not you will be able to manage the payments consistently, stick to a new budget, and prevent yourself from going deeper into the red.
Like any other loan, failing to meet the repayments will put you into debt, and it will take its toll on you, your finances, any assets you have used to secure the loan, and your credit score. There are many benefits to this type of loan, but the true benefit comes from your ability to keep on top of your money, and consistently work towards being debt free.
Of course, whether or not you choose to go with a consolidation loan primarily depends on the rates lenders are able to offer you. If your credit score has taken a hard hit as a result of missed payments, for instance, it can be difficult to find a manageable rate. There are lenders, however, who specifically cater to poor credit histories, and you should take the time to compare these options before finding a loan that is right for you.
Debt can become a serious problem, but it is not a life sentence. Consolidation offers an effective, tried-and-testing alternative to juggling repayments, fees and APR each month, and it can finally give you the opportunity to turn over a new leaf with your finances, and begin to implement better practices for the future.