The Best Reasons for Going with Debt Consolidation

Debt consolidation is the combining of a number of loans into one single loan and it is similar in many ways to re-financing, in that you use one new loan to repay your existing loans.

When you consolidate, you are not clearing the old debt, but you are moving your old balances for many loans into one larger loan. The total value of what you owe will still be the same as it was prior to the consolidation, but you may gain certain benefits from combining your loans and moving them to another lender.

As an example, let’s assume that you have outstanding balances on two credit cards. You owe $1,500 on each of those cards and the interest rate on both cards is 18% APR. If you wanted to consolidate debt, you could obtain a single loan of $3,000, ideally at a much lower interest rate, and repay the credit card balances with the funds from the loan.

Why Should You Consolidate Debt?

Simply moving money from one place to another doesn’t achieve anything, but there are ways that you can consolidate debt that will be beneficial for you. When you find the best way of doing it, that’s when you’ll really reap rewards and gain an upper hand in handling your finances. There’s plenty of places you can check to learn the best ways of doing it. But one of the top spots is AllstateDebtConsolidation.

They give you the full low-down on what needs to be done and how to do it in a way that best meets your needs.

To Save You Money

The main reason why you may want to go with consolidation is that it could save you money if you can borrow at a lower interest rate than you are currently paying. That would be a big boost to your ability to make the necessary payments every month.

Credit card balances, for example, usually attract high interest rates, which can sometimes make them difficult to pay off.

If you can consolidate your credit cards into one loan that has lower interest rates, you will make a saving on the amount of interest that you are paying. That will mean that a higher proportion of every dollar that you pay toward your bills will go towards reducing the principal amount. Ultimately, that will help you pay it off faster.

To Simplify Repayments

Consolidating debt will also make repayments simpler to manage, because there will only be one payment to make. While switching to one payment won’t save you money, it will make it easier to make sure that you don’t miss any payments and it will help you avoid late fees and penalties.

In some cases, you might find the single payment is larger than the total of the smaller payments that you used to make, but that can be a good thing. If the interest rate is lower than what you were paying, a larger monthly repayment will mean that you are paying off your creditors a lot faster. Simply making the minimum repayment on credit cards will hardly make even a small difference to your totals.

That’s why it’s crucial to make as large a payment as possible each and every month. It’s also important to scrap together as much money as you can and put that towards what you owe.

But don’t ever for a second think that debt consolidation is going to work miracles for you. It won’t. You need to contribute to a healthy management of your money. If you stay focused on the things you can control, you be fine.