Despite our best intentions, our financial health usually takes a hit with all December’s expenses. JanuWorry is real, but you can get your finances back on track with a consolidation loan.
Let’s face it: paying several lenders each month can be a hassle. It can also be expensive, especially if some of your debts have a higher interest rate than others. This is why consolidation should be an option for you.
Taking one large loan to pay off all your smaller debts is called debt consolidation. If you consolidate your debts, you will have one monthly payment, rather than many. It makes it easier to keep track of your payments. And it can be cheaper if the consolidated loan has a lower interest rate than the combined rates on all the other loans. Your interest rate will be based on your credit score, income and other financial details.
Let’s look at what you need to keep in mind when you consider a consolidation loan for debt settlement and to improve your financial wellness.
A consolidation loan only makes sense if you qualify for a personal loan with an interest rate that is lower than the rates you currently pay on your different loans. With the lower rate your repayment will be less, which will save you money and give you cash in your pocket to pay for your expenses so you don’t need another loan. That’s how you start building financial wellness!
To find out for what rates you could qualify, simply complete the loan application form. It does not put you under any obligation to take the loan.
The greatest potential disadvantage of a consolidation loan, is that your debt could end up costing you more over the total debt period. This will happen if you choose a longer repayment period for the consolidation loan.
For instance, if you take a personal loan with a five-year repayment term when you would otherwise have repaid your debts in two years, you’ll pay interest for three years longer. This could mean you will pay more interest over time, depending on your loan’s interest rate.
In some cases the immediate benefit of one, lower monthly instalment will outweigh the higher total cost, especially if the difference is not very much. In other cases, you could end up with a serious debt burden that hinders your financial recovery.
It is, therefore, very important to do your homework before you decide to take a consolidation loan. And always make sure you deal with a registered lender that has a good reputation.
One of the most important indicators of financial health is your credit score. It is based on a number of different factors, including how many loans you have at any given moment, whether you have missed any payments, and how much of your available credit you are using.
With an excellent credit score, you can negotiate better interest rates; with a poor credit score, you always end up paying more for credit. In the worst case scenario, you might not even qualify for a loan.
With this in mind, your credit score should be a priority when you consider a consolidation loan. When you are struggling to repay your debt – paying late, paying short or not paying at all – you damage your score. You also damage your score when you max out the credit you are allowed (this is called your credit utilisation rate).
Consolidating your debt with a personal loan will improve your credit score, and your financial health, if it leads to a lower credit utilisation rate and more on-time payments.
Consolidating debt with a personal loan can be a good idea if you can get a new loan with favourable terms and a lower interest rate than your current debts combined.
If you qualify, make sure you understand the loan terms, have a plan to pay it back and get your spending under control so you don’t end up deeper in debt. If the conditions are right, a debt consolidation loan is an excellent debt settlement tool and way to improve your financial wellness.Go back