Having debts is a normal part of a person’s life. We incur debts in our day to day living, even if we stay at home and do nothing. Our bills and interests run by the minute, forming part of our liabilities. As you can see, incurring debts is not something that we can avoid.
Owning debts is the norm. The cycle starts with us incurring them, and the highlight is us scouring for ways to get rid of them, then back to the beginning again. At some point, however, having too many bills can be overwhelming and stressful. Mountains of credit card bills can be drowning. Consequently, we continuously scuffle for ways to free ourselves from them.
We cut down on expenses and look for more sources of income to pay them off little by little. Withal, there is another way to get out of debt, and that is by debt consolidation. It may sound ironic that the way to get out of debt is by incurring another obligation, but weirdly enough, it helps.
There are a lot of misconceptions about it since only little is known of debt consolidation loans. Hence, to relieve you of confusion, we prepared a brief explanation of how debt consolidation will help you get out of burdensome liabilities.
What is Debt Consolidation?
Debt consolidation is the act of taking out a new loan to pay off all the multiple debts you currently own. In debt consolidation, different obligations are combined into one massive debt with favorable terms of payment. All your debts, in effect, will have one monthly payment with loan terms payable, perhaps, at lower interest and lower monthly amortizations.
How does it work?
You can consolidate your loan by applying with banks, credit companies, or other financial institutions that offer debt consolidation loans. There are also credit companies or lenders that facilitate consolidation loans online. For one, CreditNinja loans cater to this type of financial need.
Note, however, that debt consolidation loans can take multiple forms. Four of the most popular types of debt consolidation loans are home equity loans, loans from family or friends, credit card balance transfers, and unsecured personal loans. Research first on which type suits you. Then, you can apply for the appropriate consolidation loan with your chosen credit facility company.
How does it help?
Debt consolidation helps you manage debts with ease. It condenses your debt into a simple payment scheme. As earlier stressed, it has more favorable terms than having multiple loans. It rolls high-interest debts into one with low-interest payment.
Debt consolidation also reduces the amount of stress you experience in remembering multiple deadlines. With debt consolidation, it reorganizes your debt in a way that will help you pay it off faster. You will be allowed to merge your loans and eliminate worries on several due dates.
To illustrate, say, you have multiple credit cards due at different dates. The tendency with this is you might miss out on a few installments, thereby incurring higher interests, or that some monthly dues may fall on unfavorable dates. When you consolidate them into a single loan, in effect, you will make single payments at favorable terms for all your liabilities instead of making several payments for each of them.
In some cases also, consolidating your debts into a single loan will also allow you to save money on interest. With debt consolidation, not only will you have greater control over your finances, but also you will earn savings on interest.
Apart from those advantages, a consolidation loan also helps in increasing your credit score. When you boost your credit score, you will have favorable chances with creditors in the future. You will also be able to negotiate better terms on future loans.
How to Qualify for Debt Consolidation Loans
To avail of a debt consolidation loan, borrowers must be creditworthy. Consequently, they need to establish creditworthiness by complying with the required documentation. Documentation varies depending on the type of consolidation loan, the applicant’s credit standing, and other factors relevant in a loan application.
Applicants must also prove that they are capable of paying their loans on time. For that, credit companies will ask for your income sources. They will also check your credit history, among others.
Debt consolidation is one of the most practical ways to manage your finances and ultimately help you get out of massive debts. It is a way to organize your dues and allow you to pay various liabilities conveniently and with better terms. This remedy helps take out the headache of having to think of many debts all at once. Hence, if you are overwhelmed with so many financial responsibilities, worry not. There’s a way through it, and that is, through debt consolidation.
Josh founded Money Buffalo in 2015 to help people get out of debt and make smart financial decisions. He is currently a full-time personal finance writer with work featured in Forbes Advisor, Fox Business, and Credible.