It is extremely easy to get into financial trouble in today’s world that commonly uses credit in many types of purchases. Credit cards and personal loans are common as people can easily apply and get approved of a credit to buy the thing they want that can’t be afforded with cash. If you are one of them, you may end up living with paycheck-to-paycheck and struggling to meet the monthly payments for the credit you have used in advanced. Don’t let the situation goes worse, you need to fix the situation immediately and stop the spending behaviors that cause the debt problem.
Debt consolidation can be a solution to restore your finance back to order, but you need to be careful if you need to consolidate debt to get rid of overwhelming amount owed. It is helpful to do a self-assessment of your financial condition before deciding to go for debt consolidation.
First, you should consider whether debt consolidation is a right solution to fix your financial burden, it can be done by defining the purposes of consolidating debt.
1. The high interest rates burden you
Although you can still meet the monthly payments of various debts, but the high interest rates make you pay more in interest and slow you from settling the amount owned because most of monthly payment goes toward the interest instead of principal sum. Debt consolidation can be the best solution as most consolidation loans have low interest rates compare to other forms of credits.
2. The monthly payment is too high, you want to reduce it
You are struggling to find enough money to make the monthly payment. It is too high as most of your income goes toward paying debt and you are looking for a solution to reduce it. Under this situation, debt consolidation can also be the best option. If you have a home, you may use it to get a secured consolidation loan that normally has the lowest interest compares to an unsecured loan. On the other hand, there are many low interest rate unsecured loans available for you to choose for consolidating debt.
3. You want to repair the damaged credit
If your credit is damaged by the existing debt due to late, miss or default payments, then it is important to get it fixed. Debt consolidation can be used for credit repairing purpose. But, if you credit score is too low, you may find it hard to get an approved consolidation loan, unless you own an asset such as home that can be used as collateral. If you manage to get an approved consolidation loan, then it is a good option to consolidate debt and repair the damaged credit. As long as you make the loan repayment on time, your credit rating will be improved.
4. You want to take advantage of debt consolidation benefits
There are at least 2 key benefits of debt consolidation: save money with low interest rate loan and ease of debt management. If you want to take advantages of these 2 benefits, then finding a consolidation loan with interest rate that is lower than the existing rates will help you save money by paying less interest with a low rate consolidation loan. After the consolidation, the multiple accounts are paid off, leaving single loan account to be focused on that eases the debt management with only one monthly payment.
Define the real purposes you are looking to achieve from debt consolidation help to assess whether the solution fits your financial needs.