Debt consolidation refers to obtaining a single loan that’s used to pay off smaller loans, leaving just one monthly payment rather than multiple payments making it easier to manage. It can also help to lower the interest rate and monthly payment as well. While some may confuse it with debt settlement, it is not the same thing. In this case, you pay your debt in full so there isn’t a negative impact to your credit. There are benefits to debt consolidation.
With the total U.S. household credit card debt as of June 30, 2017 at $784 billion, according to Credit Karma, it’s no wonder so many are looking at consolidating their debts.
Benefits of Debt Consolidation
Getting the Lowest Interest Rate
Obtaining a secured loan to consolidate your debts is usually the best way to get the lowest interest rate. Some of the most common secured loans including getting a home equity line of credit or refinancing your house. Oftentimes, your realtor in NJ, or wherever your home is located, can be a great resource for obtaining the best mortgage lender as they typically have a list of good lenders to refer their customers to. With a lower interest rate, you’ll end up with a lower monthly payment and the interest payments may be tax deductible too.
A secured loan is usually easier to obtain as it means less risk for the lender. Plus, having one monthly payment with a better interest rate can substantially ease the financial burden.
You’ll Pay Your Debt Off Faster
A debt consolidation program or loan can help accelerate the time it takes to become debt-free, potentially eliminating debt in 4 to 6 years, as compared to the average period of 20 years or even longer.
Improving Your Credit
If your debt has gotten so heavy that you’ve been making late payments, or not paying at all, resulting in charged-off accounts, defaults, collections and so on, it has a big negative impact on your credit score.
But, once you get a debt consolidation loan and those accounts are paid off, your credit score will improve. A consolidation company can also help to negotiate with your creditors to get those accounts reported in your favor.
Those Collection Calls Will Stop
Once you’ve obtained a debt consolidation loan and your debts start getting paid off, those awful collection agencies and creditor calls will slow down and then eventually come to a stop. You’ll be able to see the light at the end of the tunnel, a time when you can stop feeling anxious every time the phone rings.