Getting into debt is a regular occurrence for anyone in the world. Some people use the money they get from loans to buy a home, pay for education, or grow their businesses. While debts may be helpful, they can quickly become hard to pay off, especially if you have far too many debts to repay or the interests are too high. In such situations, what do you do?
One financial strategy you can use to pay your debts and remain afloat financially is debt consolidation with Powell Associates Ltd. Before we can take a look at the five key benefits debt consolidation offers, what is debt consolidation?
What is Debt Consolidation?
It is a process of consolidating all your existing debts into one loan. This strategy is quite useful, as it allows you to pay off all your outstanding debts over a particular time period. It also helps you save a substantial amount in interest and other hidden charges, as it combines all your high-interest loans into one lower-interest loan.
So when do you decide to go for debt consolidation?
When your debt is too large: If you have a huge debt and it’s becoming quite challenging for you to pay, then debt consolidation might be your best bet. You can pay off your debts sooner and improve your cash outflow with a lower interest rate.
When you want to improve your finances: If your debts are quickly draining your finances, debt consolidation can help you improve your finances significantly.
Benefits of Debt Consolidation
The key benefits that debt consolidation has to offer include:
1. Increasing your Credit Score
A credit score is a figure that expresses an individual’s credit information. This number indicates the risk you represent for money lenders compared to other individuals. Lenders want to know how you’ve handled credit in the past and based on your credit score, the lender can determine if you qualify for credit. The higher your credit score is, the more willing lenders are to work with you.
Debts can significantly drop your credit score, and you can enhance your score through debt consolidation. Consolidating your debts significantly reduces your credit utilization ratio.
Credit utilization ratio or rate measures the amount of credit you use compared to the amount available. If your rate is lower, then your credit score increases significantly, which ultimately increases your chances of acquiring another loan in the future.
2. Lower Interest Rates
Most loans, especially unsecured loans, come with pretty high-interest rates. And those rates tend to make it quite challenging to pay back your debts. Debt consolidation allows you to combine all your debts into one, enabling you to pay a lower interest for the debt.
Also, even though you have low-interest loans, combining these types of loans can still help you get an even lower overall rate for them.
3. You Can Pay off Your Debts Faster
Debt consolidation allows you to pay off your debts much faster than anticipated. A key advantage of combining your debts is that you get a timely schedule that helps you stay on track with your loan repayment. And thanks to that schedule, you get to pay off your debts quite fast.
Here is an example of how debt consolidation can help you pay your debt faster.
Home equity loan or Personal loan: Consolidating your personal loan allows you to repay your personal or home equity loan in monthly installments over a specific period anywhere from months to years. This allows you to repay your debts quite faster as it lowers your interest rate and increases your monthly payments.
4. You Simplify Your Repayments
Nothing is more stressful than figuring out when to make your loan repayments. You can easily miss paying a bill, especially when juggling multiple loans and credit card payments. Also, by missing one payment, you can damage your credit report even further.
Debt consolidation allows you to repay your loans and credit card in a simple way. It also becomes easier to track your repayment progress, pay your bills on time, and never miss your loan payment.
5. You Can Lower Monthly Payments
Debt consolidation can help you lower monthly loan payments. And with lower monthly repayment terms, you don’t have to fear accruing more in terms of interests over a specific period. You also get the freedom to adjust your monthly payments, especially if you are struggling to make ends meet.
So, if you are looking for a way to pay off your debts without denting your pocket, why not try debt consolidation?
