A few maxed out credit cards, a personal loan that’s accumulating a lot of interest, and suddenly you’re feeling swamped with financial problems. Believe me, it has happened to the best of people, when at one point in our lives, most of us have faced financial hardships.
But you have to come to terms with the situation, stay calm, and focus on how to come out of the mess. We look at five ways debt consolidation loans can help you financially and allow you to get back in control of your money.
1. Lower interest rate
Typically, a credit card loan is calculated at an interest rate which may be anywhere between 12.5% to 23% per annum; while a debt consolidation loan may charge 8.5% to 18.99% in interest, depending on fixed or variable interest rate. But remember that a lower interest rate on a higher principle amount can result in you paying a lot more over the long term.
2. Improves credit rating
If you’ve opted to take a debt consolidation loan, rest assured that payment of all your assorted loans on time will improve your credit rating in the eyes of the financial institutions, making you eligible for future loans or mortgages, should the need arise.
3. One regular payment schedule
Consolidated debt means one single payment every month, instead of numerous payments to be made to various financial institutions. Suddenly making repayments becomes a smooth, quick process, without you having to get stressed managing all the loan repayments spaced over the month.
4. Reduce debt processing fees
Sick of those late payment fees? A debt consolidation loan will work towards lowering your processing charges for each loan or mortgage you owe. But this will only work if you do your homework, and compare the pros and cons of each loan versus others you have already started. So do your research carefully.
5. Control of finances
A conscious decision to go for a consolidated loan will bring you a feeling of control of your finances, as you will be forced to look at your spending habits and take stock. Also Equated Monthly Instalments (EMI) on your loan will take away a chunk of your income every month, forcing you to take charge of your finances once again. But this is a good thing!
Check your bank’s website for an online debt consolidation calculator, do plenty of research and speak to your bank or a financial expert before choosing a debt consolidation loan.