Do you want to lower your monthly payments? If someone is struggling with several debts with different monthly repayments, terms and interest rates and their current economic situation does not allow them to pay off, they may consider applying for a debt consolidation loan and roll your previous debts into one big debt. By applying debt consolidation, you can benefit from a single monthly payment. It is more beneficial rather than juggling multiple debts.
What Is Debt Consolidation?
Debt consolidation means collecting your older debts into one group and have a single new loan with lower-interest which requires you to make only one payment each month rather than more. You will be offered two options: Either your previous debts will be paid off by a lender and you will repay that amount to that lender with a new payment plan and a more reasonable interest rate or you will receive a new personal loan issued by a lender to pay off all of your older debts.
Main Ways To Consolidate Debt
0% interest balance transfer credit cards: After transferring your previous debts onto that card, you can start making your monthly payments without interest for a limited time which is called promotional period and generally takes 12 to 24 months. When that period ends, you will be charged
Debt consolidation loans: You can receive a loan to pay off your older debts then repay that new loan in installments.
Home equity loans: You borrow against the equity of your house and use that money to repay your debts. Since you will reduce the risk for the lender by pledging an asset, you will be charged a lower interest rate.
401(k) loan:You can borrow up to half of your retirement account to repay your previous debts.
When To Apply For Debt Consolidation Loan?
There are several reasons to use Debt Consolidation Loan:
If you are eligible to apply for a 0% credit card or a debt consolidation loan,
If you have several debts with different interest rates,
If you want to get out of debt,
If you want to face better terms and lower interest,
If the total amount of your debts is less than 50% of your income,
If you want to save some money due to the lower interest rate,
If you want to boost your credit score,
If you want to pay off less than what you actually owe, you may consider debt consolidation as an option.