How Does Debt Consolidation Work?

 

The Complete Guide to Debt Consolidation

If you are anything like me, at one point or another you have found yourself with a bunch of credit cards or loans and have got confused by them all!

Each one has a different payment date, a different payment amount, and a different % APR. Keeping on top of the repayments is a job!

As a writer, numbers aren’t my forte. Being self-employed, juggling different accounts and different payment dates and different amounts is less than ideal when my income fluctuates every month, and comes in at different times each month too.

Are you in the same boat? Read on to find out about a solution to make your life a lot simpler.

Click here for more info on debt and how it might affect you.

Understanding How Debt Consolidation Works

Debt consolidation is a way for people with multiple debts to combine them into one lower-interest loan. This can help people with debt to reduce the number of monthly payments they have, and lower their total interest charges. Click here for more information.

The debt consolidation process starts by looking at all your debts and adding up the total amount you owe. Then, you take out a new, larger loan for the amount of all of your debts added together. You use this loan to pay off all your other loans.

This new loan should have a lower interest rate than some or all of your existing loans, which will save you money as you pay all the debt off.

Finally, you make regular payments on this new loan until it is paid off. This means you pay all your debts in one simple monthly payment to one loan provider, at one interest rate.

If nothing else, this simplifies your life greatly, with only one set of documentation and one payment date per month.

Debt Consolidation Can Reduce Your Borrowing Costs

As we have seen, debt consolidation is taking out a loan that is used to pay off all of your other loans. It sounds like a good idea, but there are things you should know before you take the plunge.

The first thing you should know about debt consolidation is that it will not make your debt disappear. It won’t reduce the amount of actual debt you have to pay, though hopefully it will reduce the amount of interest you handle.

It will change the way your looks on paper, and potentially change the interest rate on some of your borrowing.

Be sure to shop around for your new debt consolidation loan, and make sure you get the best deal for you. You can try a comparison website initially to see what sort of loans are available.

There are four things you should know about consolidating your loans:

1) There are no upfront costs and there may be a reduction in interest rates

2) You’ll be paying off more than one loan at once

3) Your monthly payment will go down

4) It could help you get out of debt faster

Consolidating your loans is a great way to take control of your finances. Because of the reduced interest rate on the one, new loan you take out to repay all of your other debts, it can reduce the amount of money you pay each month. Because of this, it can help you get out of debt faster.

It’s important to understand that consolidating your debt does not change the amount of debt you owe or the number of payments you have to make each year. What it does is combine all your monthly payments into one, so it’s easier for you to make sure that each payment gets made on time.

Is debt consolidation right for me?

Debt consolidation is a solution that is designed to help people who have multiple loans and credit cards, but it’s not right for everyone. If you have a high income, good credit score, a regular income, have all of your debt on low or zero interest plans,and you’re able to make payments on time, then debt consolidation may not be the best option for you.

However, if you are fed up with juggling a lot of payments, and you think you can get a better deal on the interest rate you are paying, then it is definitely worth looking into.  Also, if you are interested in saving a little money on the interest payments, it is worth lookiing into.

After all, paying 10% interest on a personal loan is a big saving from 29% on a credit card. Saving that interest payment alone could help you pay off your debts faster once they have been consolidated.