If you find yourself in debt, you’re not alone. Between student and home loans, credit card bills, and more, thousands of Americans have managed to score many millions of debt dollars. Some of these people may turn to debt consolidation to pay back the loans. It provides a relief plan for those who find themselves in unmanageable debt.
However, before taking this route, you should know the pros and cons of debt consolidation. Here’s an in-depth look at both:
Pros of debt consolidation
Some benefits of debt consolidation include:
Reduction of monthly payments
Debt consolidation reduces the number of your monthly payments to one, making it easier to manage your debt. You won’t have to worry about making multiple smaller payments on different due dates. Instead, you can set aside one payment to make together once every month.
Repays debt sooner
Taking a debt consolidation loan can help you better track your loan payment. By consolidating smaller loans into one, you get a better idea of how much you owe and set a fixed timeline for paying back that loan. Since credit cards don’t have a set routine for payments, debt consolidation can help you plan your payments better.
Lowers interest rates
The Bureau of Consumer Financial Protection reports that the average credit card interest rate is 18.7% whereas, personal loans come with an average interest rate of 10.07%. This means that you can get a consolidated debt loan at a better interest rate if you work with a reputed lender.
Boosts your credit score
Your payment history makes up for 35% of your credit score. This means that you’re reducing the risk of defaulting on your loans when you condense multiple payments into one. Paying your installments on time reflect positively on your credit report and lead to more opportunities.
Cons
Debt consolidation isn’t flawless. Some conditions that may affect your opinion regarding the service include:
Upfront costs
Debt consolidation loans come with different fees, including the loan’s original fee, balance transfer fee, closing charges, and annual fee. Before taking out a debt consolidation loan, it’s wise to ask your lender about any hidden charges.
You may have to pay a higher rate
Depending on your current credit score and the loan’s term and amount, you may have to pay a higher interest rate. Extending your repayment period can also lead to an increase in the total amount due.
All in all, your credit score directly impacts your ability to bag minimum interest rates. If you currently have a low credit score, work with us to improve it. At 007 Credit Agent, our credit repair experts in Irvine provide customized services to improve your credit score in just 90 days. Radius Global Solutions, Wakefield & Associates, or Jefferson Capital Systems—whoever caused your negative credit, we’ll help you fix it. Connect with our friendly customer service today for assistance!
