Debt Consolidation Loan: A Comprehensive Analysis of the Benefits, Reasons, & Indications to Use

Charlie Brown

October 15, 2018

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Experts believe that the success of your debt consolidation loan actually is reliant on perfect timing. Numerous people have chosen debt consolidation in times of financial crisis and have resolved their debt and financial issues. However, not everyone who has used debt consolidation reported success. Even though debt consolidation is an effective and legal process to get out of your debt issues, it may not be the perfect solution for everyone or every situation. In this context, you must realize that there is no standard formula for getting out of debt. So, it becomes even more important to choose debt consolidation after a lot of deliberation and after a thorough research.

A debt consolidation loan would be paying off all your debts because a lender would be lending you the entire amount required to pay off all your current multiple debts. For instance, suppose you are using three credit cards and you have a debt of total $20,000 on them combined together. When you put in the debt consolidation application, you would be asking for $20,000 as a consolidation loan. If you are eligible, they would be lending you exactly $20,000. You could pay off all your credit card debts with this single consolidated loan. You would require closing all the credit card accounts and simply making one single payment every month.

Benefits of a Debt Consolidation Loan in a Nutshell

The greatest benefit of debt consolidation is that your present debt would be paid off at once with the consolidated loan. You no longer need to get stressed out about the multiple credit cards, you were always struggling to pay, the overdrafts on the bank accounts, and also, the household bills. In this context, you must know that unsecured consolidated loans would be lifting of your pressure and stress of paying diverse bills every month including those bills that are long past due. Here are the amazing benefits of a debt consolidation loan in a nutshell.

You need to be concerned with one single monthly payment.
Debt consolidation could automatically mean a lower interest rate that would be saving some money.
A debt consolidation loan would be amortized within a period of 2 to 5 years.
Generally, no fees are involved if you are borrowing money from a credit union or a bank.

Some Reasons to Use Debt Consolidation Loan

Before we start analyzing whether debt consolidation is the right step for you, let us explore some of the top reasons for using a debt consolidation loan.

For Combining Multiple Debts

Debt consolidation is an effective debt solution involving integrating a host of different debts into one single debt. You are required to borrow a large amount that should suffice for paying off all your debts in one go. Once your loan request is approved, your lender would do the needful for paying off all your existing debts. Thereafter, you would only have one single big loan to take care of. This makes the repayment plan far easier and you could stick to the schedule because you just need to make a single monthly payment to come out of debts. You would no longer be confused while monitoring the payments. Visit Nationaldebtrelief.com for perfect debt consolidation solutions and professional advice.

For Lowering the Rate of Interest

Another important reason for considering debt consolidation is for lowering your interest rates on the loans. Debt consolidation loan is just an ideal one for people with multiple credit card debts. The rate of interest seems to be exorbitantly high. The bulk of your debt repayment is accounted for by the interests alone. If you are successfully able to lower your interest rates, there is a possibility of saving substantial balance as a larger portion of the payments would be going to your principal balance.

For Boosting Payment Terms

Another reason for taking out a debt consolidation loan is to boost the present payment terms. Some lenders would be charging exorbitant fees and some additional charges too. If you could shift to a new lender provided you do not have to pay multiple fees, it is best to opt for a debt consolidation loan. You could switch over to a debt consolidation loan if it is possible to shorten the repayment period. In fact, a shorter term implies you would require making much bigger repayments but your interest rate is bound to be lower. However, if you are looking to extend the repayment period or the loan term, you could switch to a debt consolidation loan that lets you extend your repayment period. This would be distributing your balance effectively over a longer time span for achieving lower monthly repayments. This should give you some breathing space in your budget.

When Do You Think That Debt Consolidation Loan Is The Right Idea?

Debt consolidation loans are supposed to be extremely beneficial and they are effective enough to drag you out of debts provided you have the right financial and credit condition. Here are certain indications that debt consolidation could be the right choice for you.

If You Could Boast of a Good Credit Score: It is not sufficient to demonstrate enough proof that you are getting a reasonably good income. You require giving evidence that you are trustworthy enough to make all the repayments and pay off your loan. The perfect way of proving to everybody that you have enough income to repay your debts, and that you are responsible enough to manage your credit properly is by having a very high credit score.

If You Have Chalked Out a Repayment Plan: Most borrowers start thinking about repayment after the loan is approved. In some cases, this works out fine, but the best way to ensure a healthy repayment is to start thinking about how you would pay off the money before even taking on the loan. You don't want to leave things to chance, lest you should come to realize things aren't as easy to afford as you thought they would be.

Conclusion: Cultivate Good Wealth Management Habits

Debt consolidation loans are great for people who have come to terms with their inordinate spending or the budgeting mistakes they made in the past, and have also identified good ways to get out of debt. You must, of course, focus on repaying the amount you borrowed, but unless you tackle the root cause of the debt, your spending, budgeting, and fund management, you leave yourself susceptible to falling into the same trap yet again. You should start saving once you feel the iron grip of debt begin to loosen so that you have a certain amount put aside for a rainy day. Feel free to seek help from confidants or experts to ensure you stay on the right track.