When you have a great deal of outstanding debt, opting for a debt consolidation loan can be a good solution, as several benefits can be enjoyed. Here are some of them:
• Decreased interest rate – The monthly payment for the new loan is usually significantly lower than the sum of the monthly payments for the consolidated debts. Many people who have debt problems have several credit cards. It is known that credit cards have high interest rates. A consolidation loan usually has a much lower interest rate and will help the borrower save money.
• Improving one’s credit score – When the borrower is late on their payments, their credit score will suffer. By consolidating several debts into one and keeping up with the new payments, the borrower can rebuild their credit (http://www.toptenreviews.com/money/debt/best-debt-consolidation-companies/).
• Single payment – Debt consolidation means taking out one loan to pay off all the other debts and, implicitly, saves you the time and trouble that making several different payments involved. With only one payment to worry about, it is easier to plan one’s budget and avoid delays.
• Less stress – Unpaid debts mean creditors calling and knocking on your door to recover their money. Debt consolidation means giving those creditors what they want and only dealing with one lender who knows your financial situation and is willing to tailor their offer so as to meet it, so they will not bother you or pressure you in any way.
• The chance to a fresh start – Sometimes, the debt consolidation loans allow the borrower to obtain a cash reserve, buy the things they need, cover emergency situations or simply start all over again, leaving financial problems behind. It is important for the borrower to take advantage of this new chance and avoid ending up in debt again at all costs. Otherwise, it will all turn into a circle of debt that gets larger and larger, as debts accumulate. Unpaid debts mean low credit scores, which mean no credibility and lower chances of getting another loan.
Consolidation loans help the borrower avoid all that and offer them the chance to start all over again, benefiting from credibility and financial freedom.
To sum up, debt consolidation is very useful, as it gives the borrower the chance to better manage their budget and keep up with their debts, but it can also be dangerous, if not used properly and for the right reasons, so do your homework before applying!