Reasons to Consider Debt Consolidation and What It Can Do for You

Going under debt is not abnormal. Many people fall into debt as they go through life. Therefore, if you are one of them, do not worry. However, just because falling in debt is easy, that does not mean that you should stay there. Astronomical interest rates and monthly payments can take a toll on anybody. Therefore, creating a vicious cycle that goes on and on for a while.

Therefore, if you are in a similar situation, you can consider debt consolidation. Debt consolidation is one of the easiest and tested methods of bringing all your debts under one roof and dealing with it accordingly. But first, we need to understand the basics of the process and how it can help you.

So, let’s go!

What is Debt Consolidation?

Debt consolidation is a means, a method, and an idea. So, what is debt consolidation? The name suggests a general outline of the topic: a person takes out a new loan with the idea of using that loan to — wait for it — yes, you guessed it; pay off multiple existing debts.

How Does It Work?

Debt consolidation works exactly like a loan, where the user can take out a certain amount of loan in order to pay off multiple debts at the same time. Loan consolidation generally works best if the user has more than one loan. 

Once a debt consolidation loan is approved, the organization would typically pay the creditor you owe money to. This reduces your interaction with the creditors. Alternatively, the whole amount can be credited into your account. In this case you will have to pay off your creditors directly. Therefore, it can be a hassle.

Once the primary debts are paid, the loan transforms into any other personal loan. This means, you will pay in a monthly or a yearly format with a basic interest. This makes the debt easy to manage. If you take longer term of loan consolidation package, the monthly payment might decrease. However, the interest rate could climb. 

In some other cases, the lender might even charge an onboarding fee. This will completely depend on your CIBIL score. If the score is high enough, the organization might charge a low fee. Subsequently, if the CIBIL score is low, you might have to pay a higher fee. Therefore, you must keep this in mind

Benefits Of Debt Consolidation

Debt consolidation is a great way to manage your debt and stave off creditors. Therefore, if you are planning on going for debt consolidation,. You need to understand the following benefits closely. 

• Save money on interest payments by consolidating into a new loan with lower interest rates.
• More straightforward finances because it’s easier to keep track of one payment than multiple payments bouncing up throughout the month.
• Better credit by working down one debt instead of multiple debts.

Cons Of Debt Consolidation

Debt consolidation have pros as well as cons. Therefore, only understanding the pros will not get you anything. Hence, you need to understand the downside as well. Here are some of the most prominent drawbacks of debt consolidation that you need to know. 

• Many firms may take some upfront fees before onboarding a client. As we have already pointed it out, the score is primarily dependent on your CIBIL score. 
• If you have a high debt, you might not be able to avail all the benefits of debt consolidation loan. There are no way to bypass this fiasco.
• Feeing up debt via a debt consolidation loan can increase your debt value. As a resu;t, you are not washing away the debt, in fact, you are simply furthering the cycle. 

Things To Remember During Debt Consolidation

Consolidating your debt can have some serious benefits. However, you need to understand that financial decisions come with their own caveats. Therefore, here are some of the things that you need to remember if you are consolidating your debt. 

• Be careful of taking on more debt by utilizing the new loan to make new purchases. 
• The tremendous promotional interest rate offered when considering a balance transfer may be for a limited time, and after that, the interest rate may go up.
• You may need to pay a balance transfer fee to transfer the debt from the old credit card balances to the new loan.

So, is it a good idea to consolidate your debt?

Great question! Debt consolidation can be an excellent option for some people, but like so many questions, the answer is nuanced. Better decisions are the reward of better reflection! What is the best option? It depends on the individual’s specific circumstances, which include many variables, from their financial circumstances to their personal life. Houston Fraley notes that the best choice is what works for each person, their specific life, and their economic circumstances.

This clarity can be a tremendous motivator for those struggling with debt, helping you stay on top of repayments and even pay off a bit extra to retire the loan faster. This is where Symple Lending comes in!

Keeping up with one loan gives many people a better idea of when they’ll be debt-free, which is especially great for those who get stressed when struggling with debt. This light at the end of the tunnel can be a fantastic motivator to help us stay focused and even pay off the loan a bit faster!

The Final Thought

Consolidating debt could be a smooth financial move that works wonderfully for some folks. Someone might want to consolidate their debt to improve their payment history. This could be a great play as long as you are sure that you can make the loan payments after consolidating, which, over time, can improve your credit score.

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