Loans are ways for you to spend a large sum of money exorbitantly, without ruining your current budget or savings. Granted there are interests on top of them, needless to say, they’ve pulled you through with sudden needs (and often wants) that require you to pay a sum upon sum on hand.
However, the tables turn when you realise your loans are piling up, one on top of the other. The solution? O at least, one of them, is debt consolidation
Debt Consolidation: Debt Defined
Let’s start with the basics. We don’t want to spook you out with unnecessary jargon. Before defining debt consolidation, let’s clarify what “debt” really means. In its simple, dictionary definition, debt is “something borrowed”. And in the context of finance, it’s a sum of money borrowed. Commonly, the payback of said sum is capped with an interest.
So, what then of interest? Think of it as a fee for having taken out the loan.
Now, we’ll give you a brief overview of what debt consolidation is, and what it can mean for you. It’s a type of refinancing wherein you will be given the option to consolidate or merge your loans under a single total.
On the other hand, it can also mean taking out a loan in order for you to repay your existing ones. Either or, each type has its own terms and conditions, as well as interest rates, and repayment options.
Organises Your Payment Schemes
The hassle and exhaustion of paying for separate loans one at a time, including keeping track of their different interest rates can take a toll on you. And if that toll is already slowly becoming too taxing and too demanding of you, then consolidating your loans will make the pressure less cumbersome.
A Variety Of Repayment Options
Comfortable repayment options at that. You can take your pick from fortnightly, monthly, weekly, etc. The beauty of having such repayment options is that it will be totally based on what’s comfortable to your pocket.
Of course, the loan term will extend if you pay in shorter increments. Still, the choice will be yours, and yours to make.
Lowers Your Credit Score
When you have small pockets of loans, paying for them consistently and regularly actually does your credit standing good. But when these are closed in place of a consolidation, that’s where you’ll have to do a double-take. The replacement of a debt consolidation itself may significantly lower your credit score.
Shortened Credit History
This proceeds to lowering your credit score as well. With a lowered score due to the consolidation plus the fact that added enquiries will be placed on your file, this equates to a shortened credit history, and that isn’t good news.
On the flip side, make sure to consider all of your options before finally deciding to consolidate your loans. And if that really is the path you’ll be taking, from here on, try to limit the number of times you’ll have your loans consolidated.
Debt Consolidation Calculator
Before making any rash decisions, you can have a sneak preview of what your new repayment options might be, along with your new interest rates through a debt consolidation calculator. Just take note that this kind of calculator (which you can search for online) will merely provide estimates.