Debts and loans can build up over time. Having multiple debts can be stressful and remembering to commit to monthly payments can be a hassle.
For example, you may have three types of debt; Credit card, short term loan and an overdraft. Three different amounts that charge three different lots of interest and different monthly payments, trying to keep on top of these can be difficult.
Consolidation means that you consolidate these debts into one, making payment a lot easier to manage with one monthly payment. It can give you the sense of financial freedom by merging them all into one. It’s an easier way to pay and easier to remember.
But what are the advantages and disadvantages when it comes to consolidating?
As mentioned above, it gives you one monthly payment that is easier to manage and gives you better control over your debt. When applying for a consolidation loan, you can choose a fixed payment plan and decide on the amount of interest to pay on top. This is an excellent way to save money, by merging the interest into one rather than three different lots of interest. It also puts creditors on hold, giving you a chance to improve your credit score.
The loan is spread out over a longer period, which means the monthly payments can be reduced.
Overall, debt consolidation can reduce the amount of stress from having multiple debts, making life that little bit easier.
Debt consolidation does come with its downsides. It is considered suitable for those with a fixed, consistent income. Seasonal workers might not be able to commit to making the monthly payments on a consolidated loan.
While it merges the interest into one manageable rate, some companies do charge higher fees when it comes to loans. Ensure that you have shopped around to find the best fees that will not cause you to lose money. Rather than a minimum payment, like with a credit card, you will have to make one fixed payment everything month.
Having the loan spread out over a longer period does it have its disadvantages too, it means that it might take you that bit longer to become debt free. While consolidating also means peace of mind, there is the danger to fall into the trap of being tempted to spend more.
Debt consolidation is for those who can commit to the monthly payments; it is advised that if you feel overwhelmed by debt and struggle to make payments, a debt management plan is the best course of action.
As debt consolidation does have its pros and cons, the key issue is being able to manage your debt. It is advised that you do a proper analysis of your debts to see if consolidating will be beneficial. Speak to your bank advisor about consolidating your debts to see if they can offer any suggestions or advice. Shopping around for the best deal and fees is heavily advised as some can charge you hidden fees.
By Harry Price
Harry Price is a truly manly man. He enjoys researching and contributing to the latest technology research and going to the gym.