Debt Consolidation: Simplify your Finances
Debt consolidation means taking out one loan to pay off your other debts. Doing so allows borrowers to roll multiple debts into one loan with a single monthly payment, as well as a lower interest rate and payment amount. Here are the details and how to tell if debt consolidation is right for you.
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What Are The Benefits Of Debt Consolidation?
When used correctly, credit cards can be a wonderful addition to your wallet.. Here are some key benefits:
Savings On Interest Paid
If you use a loan type with a lower interest rate, you can reduce the amount of interest you pay while tackling your debt. This is especially true if much of your debt is on credit cards. Credit card debt comes with some of the highest interest rates of any form of debt, often 20% or more.
Improved Credit Score
If you make your payments on time each month, you’ll steadily rebuild and possibly then increase your credit score. That’s because making on-time payments is the biggest factor in calculating your credit score. Reducing your debt will boost your credit score, too.
Fewer Monthly Payments
By consolidating your debt into one loan, you’ll reduce your number of monthly payments to just one. Having one payment rather than several is a great way to feel more organized and in control of your finances.
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Frequently Asked Questions
Here are answers to common questions about debt consolidation.
Who qualifies for debt consolidation?
Those with multiple outstanding loans can qualify for debt consolidation by applying with a lender. When applying, borrowers will supply their personal and financial information to qualify for a consolidation loan.
Does debt consolidation hurt your credit score?
When you apply for debt consolidation, your lender will check your credit. This action temporarily lowers your credit score. However, making on-time payments after consolidation will help raise your score to previous or even higher levels.
What’s the difference between debt consolidation and debt settlement?
Debt consolidation allows you to roll multiple debts into a single payment, while debt settlement is an agreement with the company to accept a lesser amount than what is due as negotiated. Usually this is done with an independent company. It can take 3-4 years and be costly. As a result, this is typically a last resort option for borrowers facing severe debts they do not have the ability repay.