Did you know that the average American household owes more than $6000 in credit card debt alone?
Add to this mortgage, insurance, and vehicle debt and you start to understand why the current situation is described as a “Debt Crisis”.
If you have debts, but would love to be debt-free, what can you do? Perhaps you are wondering whether it is smart to consolidate debt from various sources into a single monthly payment?
Why not find out the answer to that question and more in our in-depth article.
Advantage: Lower Interest Rates
The key to benefitting from a consolidation loan is finding a provider that grants you low-interest rates. The lower the interest rate the more that you are paying off the principal amount.
It is not always easy to find a debt consolidation company that will provide favorable rates. Companies such as Debthunch do provide a reasonable repayment structure that can provide helpful rates.
Advantage: Boost Your Credit Score
Another advantage of debt consolidation is the potential to boost your overall credit score. As you remove debt from your credit card to a consolidated debt, the burden of debt on your card is lowered.
This is strongly connected to your credit score. You are literally creating space on your card for you to be granted further loans.
There is also value in having a single payment to make each month. Although the monthly consolidated fee is likely not less than your multiple debts, making a single payment is easier. Regular payments without missing a month can also boost your credit score.
Disadvantage: Unseen Fees
While there are some definite advantages to consolidating your debt. You should always read the fine print carefully for unexpected fees.
An example of this could be early repayment fees. You might think that early repayment is beneficial for everyone involved. However, when you complete repayment of a debt you stop paying interest to the financial institution.
Great news for you, not so much for the bank. To prevent loss, the financial institution may enable early repayment fees.
This is just one example of a detail that you will need to check carefully before signing up.
Disadvantage: High-Interest Rates
If you can get lower interest rates, you will immediately start benefitting from your debt consolidation.
However, let’s be honest here, you may be in debt because of repeated unwise spending. The result of a history of unbalanced spending could be that financial companies do not offer you favorable rates. In this case, you should question seriously whether consolidation is worth it in your case.
In some cases, the loan company may be willing to accept personal assets as collateral for a consolidation loan. However, you should take a long and honest look at your history of spending. Are you willing to lose these personal collateral items?
Is It Smart to Consolidate Debt? and Other Important Questions
If you have multiple sources of debt, you may well be asking yourself “is it smart to consolidate debt?”. Likely now you will know the best route out of debt for you in your own circumstances.
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