What is a debt consolidation loan?
Dealing with a lot of installments due every month, can really take its toll on your budget and then to top it all another bill pops up. It is easy to see why people fall behind on their monthly installments. Debt consolidation can effectively help you consolidating all your monthly repayments into one, like your short term loans, credit cards, shop accounts, etc. You can consolidate all those payments into one payment with a single due date and a fixed interest rate, which can even be lower than what you are currently paying depending on your credit score.
Understanding the basics of debt consolidation loans
As you read before, the main advantage of a debt consolidation loan is that you can include all your current monthly payments into one and that can help you in the sense that your total monthly installment will not only be lower but also fixed for the term of your debt consolidation loan. People tend to consolidate their current debt to simplify their finances. Also, make sure that you address the behaviour that got you into a tight spot in the first place. Don’t take out a debt consolidation loan to dig a deeper hole, you should examine your affordability(budget) and recognize the problem and solve it so that you do not make it worst.
With a debt consolidation loan you essentially take out a loan to cover multiple loans, with varing interest rates and cost, which then only leaves you with one loan installment to be paid monthly.
Best is not to just look for a consolidation loan to solve an affordability issue, as you will find that most debt consolidation companies will not even look at your application if your affordability is already full with no space available, because a consolidation loan is not something to solve your affordability issues as that is a factor that you should have considerred with each and every credit transaction that you enter into.
When is consolidation loans a good idea?
It makes sense for someone that has identified the cause of why their debt has gone up, and has already taken action to prevent that from happening in the future, like “I lost my job and could not pay my accounts” or “I was in a habit of just spending” but now I have a budget and I stick to it. It can also be a good option for someone that is looking to extend their credit and get a loan to help with an existing emergency, then the new loan, together with the consolidation loan can be put into one.
Having a fairly good credit score with some available affordability, will give you more available options when you want to consolidate and you might even find a loan at a fairly priced interest rate, your credit score will most probably be the single most deciding factor on whether you will get that consolidation or not.