As you go through life, you’ll find that you won’t get far unless you borrow money from several sources. For example, you may have student loan debts and credit card bills that you need to pay. Figuring out when to pay your bills, how much you need to pay, and what the interest rates are can get very confusing.
But you can solve this problem through debt consolidation. You can consolidate your credit card debts so that you only need to make one payment each month.
Why Consolidation May Be Right for You
Consolidation is an option for your credit card debts and loans. Here are some situations which may make consolidation worthwhile:
• You can’t track down all your debts reliably. That’s a problem with being a scatterbrain. Sometimes you just forget. With debt consolidation, you only need to worry about a single large debt instead of a dozen of little ones.
• The new terms of the loan allows you to pay less in interest. That should save you a lot of money in the long run.
• You don’t increase the overall amount you have to repay. In fact, it could be lower.
• The new repayment amount is more affordable for you. This is a crucial factor especially if you’re having trouble making payments each month.
• You have assets you can use as security for your new loan. Debt consolidation often means taking out a new loan to pay for all your current ones. If you have a home you can use as security, you can lower your interest rate payments substantially.
• You have a superb credit score that allows you to take on an unsecured debt. You may also get a new debt with an attractive interest rate only if you have a very high credit score. The new interest rate can be much lower than what other lenders (such as credit card companies) may be charging.
Why Consolidation May Not Work for You
While consolidation can make debt repayment a simple scheme for you, it may not be your ideal choice for certain situations such as:
• Some loans offer loan forgiveness privileges, and those privileges may disappear when the loan is consolidated with other loans. These are the kinds of privileges which you really should keep in your pocket.
• You’re about to completely pay off a debt with a high interest rate. By having several different debts, you can choose which ones to focus on so you can reduce the capital. For example, if you owe a pawn shop some money to the tune of more than 65% in annual interest, it’s a very good idea to pay off this balance first.
Remember, with consolidation you pay off each debt equally, and your payments can be stretched out over a longer period of time.
• While a secured loan may work, there’s always the risk that your financial situation may change. You may lose your job, or suddenly incur emergency medical bills not covered by your insurance. When you begin to miss payments on this loan, you can lose your home.
• As for an unsecured new loan, most people who need it don’t have the credit score to qualify.
Basically, debt consolidation is a convenience. You need to check out what you’ll pay in extra fees and see if the price is fair for the convenience it affords you. If not, then you’re better off not consolidating your debts at all.