4 Benefits of Loan Consolidation You Might Want to Know About

4 Benefits of Loan Consolidation You Might Want to Know About

May 30, 2023 Off By Glespynorson

No matter if your debts are caused by a car loan, mortgage, or personal loan, dealing with multiple debts simultaneously can be a huge source of stress. You are dealing with different accounts and have to account for the different interest rates, monthly due dates, etc.

That said, if you’re in this type of situation right now, there is something that can make your life easier, and that is debt consolidation. But what is debt consolidation, and what are its benefits? Read on to know more about it.

What is Debt Consolidation?

Debt consolidation is taking out a new loan or credit card to pay off multiple accounts. Combining multiple debts in one account will make it easier for you to manage, and you might even have the opportunity to save money if you opt for a loan with a lower interest rate, lower fees, etc.

Not only that, but since you’re now only managing a single account, gone will be the days where you have to deal with multiple interest rates, multiple monthly due dates, and so on. However, why should you consolidate your loans? What are its benefits? Let’s delve in deeper.

You Can Save Money

One of the most common reasons people consolidate their loans is to save money. One way to do this is to consider your debt consolidation loans or credit card options. That said, when looking for an account to consolidate your debts, whether through loans or credit cards, you should consider a faster repayment timeline and lower interest rate.

Something we could recommend you to get, though, is a balance-transfer credit card. A balance-transfer credit card will allow you to pay off your debt at zero interest if you get a card with a 0% introductory APR. This way, before the 0% interest rate expires, you can use the money to pay off your debt without accruing any interest.

The only disadvantage is that you have to pay off your debts before the promotion expires, so if you pay off your debt after the promotion ends, you’ll be getting interest rates, and let us tell you, they’re not cheap.

However, if you don’t trust yourself with a credit card, you could opt for a personal loan with low-interest rates. You can pay off your principal much faster with a low-interest rate. You could also opt for a home equity loan since they have a low-interest rate but be warned, though, if you can’t pay it off, you’ll have your home repossessed by the bank or lender.

Lower Down Your Monthly Payments

If you’re struggling with your monthly payments, it’s another reason why you should consolidate your loans. Since you’re now managing a single account, you don’t have to worry about paying off separate monthly interest anymore, which means you’re only paying off one single account. This will lower your monthly payments significantly.

Set a Deadline for Yourself

Managing multiple accounts can make your struggle seem like there’s no end. Since we’re talking about different accounts, their maturity date is also different. Because of this, it seems like paying them all off is only a pipe dream.

Fortunately, by consolidating your debts, you can set a date when you can pay off all of them, and after that, you don’t have to worry about them anymore. If you want to talk about how fast it can be, it will depend on the type of loan you’ll get for your loan consolidation. However, note that the shorter you want the repayment to be, the higher your monthly payment will also become.

Improve Your Credit Score

Not only is debt consolidation getting rid of your debts altogether, but you’re also giving your credit score a huge boost.

If you’re consolidating your debts through a personal loan, you’ll see a huge boost to your credit score since you’re lowering your credit utilization rate. Not only that, but personal loans have a shorter repayment time and low interest rates like a cash advance from CreditNinja.com.

However, remember that when you take out a personal loan, it’s normal to see a small dip in your credit score. This is because taking out an account will create a hard inquiry. Having a hard inquiry in your credit report isn’t a bad thing per se, but if you get a lot of them in a short period, it will be bad for your credit score.

With that in mind, you’re only taking one, so it’s fine, and you’ll get back those points anyway if you keep up paying off your debt consolidation loan on time.

Final Words

Dealing with multiple debts can be a huge stress in our financial lives. However, it doesn’t have to be like that all the time. You’ll make your life easier by consolidating your loans into a single account. From having a lower interest rate to improving your credit score, debt consolidation might be the key to getting your financial life back in shape.