Things To Keep In Mind If You’re Looking To Consolidate Debt
What to know if you’re looking to consolidate debt
Perhaps you’ve been owing debts from different lenders and now you need to settle, but you are finding it hard to figure out which of the debt to pay off first.
As the interests on every one of your debts compound to the burden of paying the actual original amount borrowed, you begin to get worried, mentally choked, and start looking over your shoulder for the right means to pay your debt swiftly with less pressure.
Thus, if you find yourself in this financial situation, the next step is to find the right solution.
In your quest to settle your debts quickly, you must have heard about the term debt consolidation either as a suggestion from a family member, friend, or some financial experts. You may ask yourself: Is this the right solution for me?
It is not uncommon to find some financial terms technical, especially if you are finding yourself in such a situation for the first time. But don’t become overwhelmed. With CuraDebt, you’re in the right place to understand the whole concept of debt consolidation, whether you are looking to consolidate your debt or to equip yourself for financial and academic purposes.
Understanding Debt Consolidation
Over the years, one of the main strategies to manage debt is to consolidate debt. For some reason, this has always been considered an effective way of getting a hold of your financial situation and eventually settling your debt.
Debt Consolidation is one of many debt financing and management techniques. It involves assisting individuals who are struggling with a series of debts from different lenders or sources. Debt consolidation involves using a loan to pay off all eligible debts in one lump sum payment.
This generally means using a single debt to pay off multiple debts, with the hopes of concentrating all the monthly payments into that one single debt.
Debt consolidation comes in different methods. In some cases, some lenders offer to settle all your multiple debts on your behalf, while others give you the money, and you pay off your debts by yourself.
Whatever works for you, there are still other important aspects of debt consolidation you need to know, and here they are:
Types of Debt Consolidation
Technically, there are two types of debt consolidation. Each of the types has its peculiar features, including the pros and cons. You need to understand your situation before picking the right one for yourself. Take a look.
Secured Debt Consolidation
This is often the most common or popular type of debt consolidation. Just like your normal banking loans, you get money from your new lender to pay off your multiple debts, however, you will have to give some sort of asset as collateral against the loan.
Your collateral is usually a price asset, a property that is worth or close to the value of the new loan. In most cases, this arrangement leads to lower interest rates for your new loan.
But don’t get too comfortable, as there are always bigger risks, such as forfeiting the collateral if you failed to meet up with the periodic payments of your new loan. Depending on your financial analysis, this may not be the best option for you.
Unsecured Debt Consolidation
Some believe that unsecured debt consolidation means there is no security for the lenders to get back their money if a borrower fails to pay their debt. But this is not always true, as a borrower is still legally bound to the payment of such debt.
In clear terms, what this simply means is that as a borrower you won’t need to present collateral as a security against the loan you are getting to pay off your multiple debts. The disadvantage of this method is that the interest rates are usually higher than the normal loan rates. Hence, you pay more than if it is secured debt consolidation.
While the decision to pick a secured debt consolidation or unsecured debt consolidation depends on your financial situation, both of them offer multiple benefits in financing your debts. Some of them include the following:
Benefits of Debt Consolidation
Simplify Debt Financing
Getting a debt consolidation loan implies that you will be repaying your debt to a single lender rather than multiple lenders. Usually, having to pay multiple lenders is confusing, as each lender has different periodic deadlines and varying interest rates. However, with a single lender, you can be focused, and fully concentrate on the single debt you are now paying for. Having a single lender also improves your likelihood of not missing your monthly payments.
Hasten your Debt Payment
In most cases, the interest rates on a single loan are usually less than the combined interest rates on multiple loans. With lower interest rates, you can easily pay off your debt faster than you could while paying multiple loans. There is also a chance of negotiating your loan payments period, which you may agree to pay off faster, so that you can live a debt-free lifestyle sooner. The lower your loan payment period, the higher you pay periodically, and vice versa.
Reduce Debt Interest Rates
Another advantage of debt consolidation is the option of getting lower interest rates on your debt. Aside from the fact that the interest rates on your new loan are expected to be lower than the interest rates of he combined multiple debts, you can in some cases negotiate for lower interest rates.
Lower Monthly Debt Payment
A lower monthly debt payment depends on the borrowers financial situation. Lower monthly debt payments mean you will be paying off the loan for a longer amount of time. This will also increase the total sum of the money you will be paying, because of interest rates. A lower monthly debt payment can be a relief, especially if your income or means of payment is not buoyant enough.
Improve Credit Score
While taking out a new loan initially affects your credit score negatively, it will eventually have the opportunity to increase after your multiple lines of debts are paid off. The situation of paying a single lender consistently will also improve your credit score. As you focus on a single lender to be debt-free with periodic payments, your credit score should improve.
What you should be wary of
Debt consolidation has many benefits, however, you should be aware of the disadvantages that come up with debt consolidation if not managed properly. Some things you should consider are the as follows:
• Increase in the total debt amount due.
• Payment of interest for longer periods.
• Tendency to miss your periodic loan payments
• It may not entirely solve your financial predicament
• It can lead to more spending habits.
The best solution
After have decided to choose debt consolidation as a means of resolving your debt, it is still advisable to consider an expert’s advice before committing yourself. This is because of the risks associated with debt consolidation, if not managed properly. Because of the risk of accumulating more debts in the long run with debt consolidation, you may want to consider debt settlement. CuraDebt, a debt settlement firm, is here to assist you with all of your debt related issues. Instead of taking out another loan, which does not relieve a borrower of debt, debt settlement involves paying affordable monthly payments into a special purpose savings account. Once a decent amount of savings has been accumulated, the debt settlement firm will reach out to a borrowers creditors or collectors, in attempt to settle the debts for less than what is owed. If you believe that debt settlement may be the answer to your debt related problems, contact us toll free today.