Many people have debt from a variety of sources. Between student loans, credit cards, and housing payments, it's easy to get behind on payments. For many people, outstanding debt from a range of sources is overwhelming. One option for payment is debt consolidation. When you consolidate your debt, all the debts you have are put under one loan for repayment. If you're feeling stuck in your current financial situation, here are a few reasons to consider consolidating your debt.
Lower Monthly Payment
One of the primary perks of debt consolidation is a lower monthly payment. When you're paying off several different loans at once, you could be losing hundreds or thousands of dollars a month. By combining these commitments into one loan, you get the chance for a lower monthly payment. If you have a lower monthly obligation, you have the freedom to put extra money into savings accounts where you may have living paycheck to paycheck. If you choose to consolidate your debt, it's essential to limit your spending. Developing a spending problem could extend your debt and keep you in financial trouble.
While consolidating your debt gives you access to a lower monthly payment, it's important to understand how. By combining the different sources of debt into one loan, you get off the hook for five short-term payments and on the hook for one long-term one. While you may not need to pay as much monthly, chances are you'll be paying off your loan for a longer time. Debt consolidation doesn't erase your financial obligations, it simply reworks them into a more manageable format. If you're considering consolidating your debt through an avenue such as student loan refinance, make sure you have a long-term financial plan in place.
Lower Potential Interest Rate
Another perk that inherently comes with debt consolidation is a lower interest rate. When you combine your debts into one lump sum, you get the chance of lowering the amount of interest you're paying on your loans. Depending on what kind of debt you have, you could be pre-qualified for a low-interest loan that you'll pay off over the course of several years. By lowering your interest costs, you can save money in the long run and make repayment easier on your wallet.
By lowering your interest and making regular payments, you can also improve your credit score. When you're throwing money at multiple loans without paying anything off, your credit score tends to suffer. By consolidating your debt into one loan, you get a boost every time you make a payment. While you may see a small dip in your score from the approval process, making your regular payments will help you increase it quickly and regularly. By consolidating debt responsibly, you can reduce the amount of interest you pay, which improves your overall finances.
Quicker Total Payoff
The final major benefit of debt consolidation is a quicker payoff. Unlike the other major perks that come from the loan company, getting this benefit is in your hands. Because debt consolidation lowers your monthly payment and interest rate, you'll have the opportunity to make extra payments. While you could put the money you're saving into a separate account, you have the option to put it towards your loan and expedite your payoff.
One way to speed up your payment is by setting up auto-withdrawal on your bank account. Many people get in trouble with their loans because they miss payments and incur late fees. If your goal is to pay your debt off faster, setting up automatic payments will prevent missed pay dates and keep things on track. When you have a set schedule for payments, it's easier to budget aside extra money for a second monthly payment. By staying financially organized, you can get a quicker total payoff on your loan and enjoy a debt-free life. You may want to meet with a financial advisor whose company uses mdr roi software to keep you safe that can help you come up with a plan for you to pay off your debts while still keeping some money in your pockets.
Overall, consolidating debt has its pros and cons. If you do it responsibly, summing your debt up into one loan is a great way to improve your finances.