The world is going through some tough economic times and almost everyone is now worried about their financial situation. Especially those dealing with loan bad credit, things can take a really bad turn. If you have several mismanaged loans it will directly affect your credit score and a bad credit score can really put you in a tough spot.
The best way to manage your loans and minimize the interest rates is debt consolidation. In simpler words, debt consolidation is all about rolling all of your small loans into a single loan which will make things way easier for you. Debt relief programs are quite common now and they really do come with a lot of benefits but you still have to play carefully or else you can end up into an even bigger debt.
How Does Debt Consolidation Work?
When it comes to debt consolidation loans, you basically take out a new bigger loan to pay off all of your smaller loans at once. You then won’t have to deal with separate monthly payments or interest rates and there will only be one loan left that you’ll have to pay off. It’s a sound and strategic move that you can easily handle and manage on your own.
Types Of Debt Consolidation Loans
There are two types of debt consolidation loans, secured and unsecured. Secured loans are easier to get and they are backed by your assets like your car or your home which serves as a collateral. On the other hand, unsecured loans are difficult to get as they aren’t backed by any assets. Even the interest rates on an unsecured loan is higher so you really need to do your math here first in order to decide the type you want to opt for.
There are debt consolidation lenders out there too that can make the job easier for you. However, here are some of the most common ways you can consolidate your debt;
Credit Cards
The credit card option sounds simple, like you just get a new credit card with a higher limit and then pay off all your smaller debts with it. However, here’s something most people don’t know; there are banks that offer cards with 0% APR in the introductory stage when you transfer them the existing funds. This promotion lasts for a short time period and you should pay off the balance as soon as possible before the interest rates shoot up.
Home Equity Loans
Looking for even lower interest rates than credit cards? Well, if you’ve built your equity over all these years then a home equity loan can come in handy to you. It’s a secure loan where the lender uses your equity as the collateral. It’s the best way out for people stuck in a loans for bad credit kind of situation.
Student Loans
Another way is to use the Federal Direct Loan Program where you can stretch your repayment plan to as long as 30 years. This way you’ll have to pay a small amount every month and as long as the interest rates are concerned, well it all depends on the weighted average of the past loans you’ve taken.
Benefits Of Debt Consolidation
Consolidating your debts can work wonders for you if you manage it all wisely. Here are a few advantages you should know;
Lesser Bills To Manage
With multiple loans to worry about, it becomes difficult to manage your household expenses. This is where consolidation comes in handy, it will help you track your expenses easily and you’ll have lesser bills to worry about. Even if you have to pay the same amount of interest rate and total balance, it still is a headache and this is another major reason why consolidation is the wiser solution. It just helps with the management on a whole other level.
Possibility Of Lower Interest Rates
Loans always come with interests and that’s where people usually get stuck. Now instead of paying multiple interests on multiple loans, when you opt for debt consolidation, you’ll only have to worry about a single interest. If your credit score is good enough, you might end up with a consolidation loan that comes
with a lower interest rate.
You’ll Be Able To Pay Your Debt Faster
When the interest on your debt reduces, it will save you some money and it will also help you become debt-free in a shorter time span.
Improve Your Credit Score
Upon taking the consolidation debt, your credit score will suffer a minor blow but with timely payments, you can improve the score and build a solid payment history again.
The Downside
It’s true that debt consolidation is the answer to your bad credit-multiple loan issue. However, it does come with a few drawbacks. For example, you might end up in a deeper and bigger debt if you don’t manage your finances properly. In case you decide to take more loans on the cards that you just paid off then obviously you will end up in hot water. Sometimes there’s an upfront fee that you have to pay for debt consolidation and if it’s a credit card then there’s a possibility that they’ll charge you a funds transfer fee.
The Bottom Line
For someone stuck with several high interest loans, debt consolidation is definitely the solution. It’s like combining all your loans into a single loan which will ultimately cut down your monthly payments. You should definitely consider consolidating your debt if you have a good credit score and can afford to make the payments on time. In a nutshell, it will save you time, money and it will cut down the interest rates too. You can consolidate through home equity loans, personal loans or even a new credit card. It all depends on the type of loan-credit situation you are in.
Looking for the best debt consolidation plan? Try Mountains Debts Relief for the most professional and efficient service. Contact Now!