Perhaps you have multiple debts with several financial institutions and are always on the rush to keep your debts up to date. Maybe your interest rates have been raised due to a payment that was a day late. It can also be that your monthly debt burden is currently too much for you and your salary to handle. For any of these problems, there is one viable solution: debt consolidation.
Debt consolidation or loan consolidation means combining multiple loans (say, a car loan, a student loan, a personal loan, a mortgage, a credit card balance) into one single loan. The loan under which the various loans will be consolidated is the debt consolidation loan – so-called for obvious reasons. A debt consolidation loan can be obtained as a viable solution to the following problems:
High Interest Rate
If one or more of your loans are currently at default rates, then getting a debt consolidation loan is one of the most effective ways of overcoming that. A debt consolidation loan is an entirely new loan, distinct from your current and existing loans. Therefore, it is possible to get a loan with a good Variable Percentage Rate (VPR) or, at the very least, with an interest rate that is lower than any of your current loans’ VPR.
Through debt consolidation, you can transfer balances from high-interest loans into your new loan with the lower interest rate. By so doing, you will get a new start and will have to spend less money towards interest payments.
Burdensome Loan Repayment Terms
Debt consolidation is also a good solution to heavy or harsh loan repayment terms. For instance, if your current loans are payable in the short-term (say, it has a repayment period of 5 years), then your monthly debt burden must be extremely heavy. In this case, you’re probably on your wits’ end trying to find the money to pay your monthly bills.
Through a good debt consolidation loan, you will be able to pay off these burdensome loans and get better – certainly much more manageable – loan terms. Your monthly minimum dues will go down and your monthly debt burden will become much lighter. This means you’ll find keeping your account current easier – and thus find it easier to avoid defaulting on your obligations.
Debt consolidation is also a great solution to financial management problems. If you are paying late on your loans because you’re finding it hard to keep your financial records straight and finding it difficult to remember which loan is due when, then debt consolidation is for you.
Through debt consolidation, you will need to maintain and keep track of only one account and thus only one due date, one balance, and one interest rate.