Going through a financial crunch can be tricky that might compel you to have some debts from multiple creditors. You might have faced a medical urgency or a temporary job loss that caused a temporary deficit of funds and that made you opt for various loans to meet your needs. A debt consolidation loan is a great option to pay out your debts and consolidating them under one umbrella. The ultimate purpose of debt consolidation is saving money and waive off the debt burden by streamlining the various debts.
There are multiple firms lending debt consolidation loans to individuals in need. You can get a detailed comparison of the available debt consolidation loans with individual details like APR and monthly payment amount in AAACreditGuide.com. However, before you opt for a debt consolidation loan, you must be aware of the pros and cons of the same.
Advantages of Opting For a Debt Consolidation Loan
Lower interest rates: A debt consolidation loan is a great option when you have multiple loans and need to make monthly payments for each of them. With debt consolidation, you can combine your existing investments and create a single payment each month. Consolidation is a far more convenient option, and the interest rate is often lower, so you need to pay a lesser amount monthly.
Easier payment schedules: It is easier to maintain a fixed program every month to pay the monthly installment for the debt consolidation. So, there are no missed due dates and late payment fees you need to incur in maintaining multiple loans. You only need to remember the due time for payment of the consolidated loan which makes it simpler.
Improved credit score: Having multiple loans can affect your credit score which will make it tough for you to apply for any more credit or loans from the lenders. Consolidating your existing loans into a single loan will improve your credit score and will allow to make investments and apply for fresh loans.
Disadvantages f Opting For a Debt Consolidation Loan
It might look like an excellent option for consolidating your existing loans and debts into a single loan, but that might not be the case always. Generally, the monthly payment amount is lesser than the consolidated amount of multiple debts. But, if you don’t choose wisely, the monthly payment of debt consolidation loan might be higher with additional fees. Look for the origination fee and other fees charged by various lenders as it will give you a bright idea before making a decision.
A debt consolidation is useful when you have some debts due to a temporary financial crisis. But, if you continuously spend more than you’re earning and keep on applying for loans to meet the deficit, a debt consolidation loan might not work. In that case, you must hire a debt counselor who will make the best strategies to limit your spending and manage your finances correctly.
Debt Consolidation vs. Debt Settlement
Many people confuse between the two terms ‘Debt Consolidation’ and ‘Debt Settlement.’ The conditions might sound similar but are completely different with different purpose and structure. Unlike debt settlement, where you apply for an additional debt from the lender to settle your previous loans, debt consolidation does not mean crediting an extra amount, but it merely merges the existing debts into a single loan. Hence, you will not incur any additional interest amount for debt consolidation and will continue paying for the current loan amount, but the debt burden will be lesser.