If you feel that you are drowning in a sea of debt, a consolidation loan may be the answer to your problems. For people who are juggling car loans, personal loans, hire purchase agreements, and credit card debt, consolidating everything into one loan can make it possible to get out from under all of your debts. But in order for any debt management approach to work, you are going to have to change your spending habits and stop incurring debt. If you are willing to do that and commit to making the monthly payments on the new loan until it’s been completely paid off, this approach can give you a fresh start, debt free.
A distinct advantage of a consolidation loan is that you remain in control of your finances and for most people that is far preferable to having their finances managed by an insolvency practitioner or a receiver as is the case when you set up an individual voluntary arrangement (IVA) or file for bankruptcy. A consolidation loan enables you to pay off all your debts, leaving you with a single monthly loan payment. Here are some of the benefits of loan consolidation.
You’ll have the convenience of making one monthly loan payment rather than trying to keep track of numerous payments, often due on different dates. You’ll also have the luxury of dealing with one lending institution instead of many different creditors. It makes managing your finances much simpler.
You can significantly reduce your interest costs particularly if you are able to secure a loan at a reasonable fixed interest rate. If you are currently servicing credit card debt or other unsecured debt, you are likely paying exorbitantly high interest rates. And if you are only making minimum monthly payments, your payment covers the interest while barely reducing the outstanding balance. If you have managed to maintain a good credit rating and qualify for a loan secured by the equity in your home, you can potentially reduce your interest costs by more than half.
You can also reduce your total monthly payment costs as consolidation loans are generally spread out over a longer period of time.
You can improve your credit rating or at the least prevent further damage to it. A consolidation loan won’t negatively affect your credit rating unless you fail to make the payments.
One of the effects of the credit crunch is that it is now harder to obtain any type of loan than it once was. Your chances of obtaining a consolidation loan are greater if you are a homeowner, have a steady well-paying job and have an excellent credit rating, loans for bad credit are much harder to come by. Make sure you shop around for a reputable lender and the best possible rates. Lay out a complete budget to ensure that you can realistically afford the loan payments before you sign on the dotted line. Also take a pair of scissors to all but one of your credit cards and cut them up. Keep only the card with the lowest interest rate and don’t use it unless you can pay it off in full at the end of the month. Staying focused on your goal and curbing your spending is essential to becoming debt free.
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