Whether it is to pay for higher education or purchase a new car, debt becomes inevitable at times. It soon leads to higher interest rates and piling up monthly bills on the credit cards. Though the situation is unavoidable in some cases, what counts is how you handle your debts.
One of the strategies that can make it easier to manage your debts is debt consolidation – the simple act of rolling your debts in one payment. Usually, it has a lower rate of interest than what you are used to paying every month. Also, your credit score gets a boost. So, a win-win situation!
So, if you are considering whether to opt for debt consolidation or not, let this blog and the following link: https://alpinecredits.ca/debt-consolidation-ontario/ outline the reasons to go for it.
1. Make one single payment out of multiple payments
Debt consolidation ensures that paying your debt gets simpler. It can even lead to low monthly payments because of the longer time allotted towards paying off.
Like most individuals dealing with multiple card balances, getting everything consolidated into one source feels like a lot of responsibilities being taken off your plate. Of course, it’s not magic and you are still under debt. However, the absence of multiple deadlines every month helps you focus better on one source of debt.
2. Your monthly interest rate is significantly lower
Unsecured debts, such as the ones from your credit cards, tend to have a high rate of interest that keep adding considerably to the debt you pay off every month. Paying off several high-interest debts and combining them into one is always helpful. You will pay less in the long run because you will have a lower rate of interest on the single account, if your credit is good enough.
Of course, credit score is a major factor in any loan. In case of debt consolidation, this score determines the kind of interest rates you will get. The ones with low credit scores (between 300 and 640) need to pay around 15-35 percent on debt consolidation loans. On the other hand, the ones with good credit scores (between 720 and 850) can pay around 4-10 percent.
Regardless of the credit bracket that you fit in, the interest rate is usually lower than the one you are paying right now.
3. Gives you a chance to increase your credit score
When it comes to scores, an undeniable advantage of debt consolidation loans is that your scores get a good boost. If you use a personal loan to consolidate your debts, your credit scores will increase in a matter of months. After all, your credit utilization ratio (aka credit utilization rate) will go down.
Credit utilization ratio is derived by dividing your current debt by the credit limits. Say you have $5,000 total in credit still with you on two credit cards, and the half of this amount is the balance on one of the cards. So, the credit utilization rate stands at fifty percent for you because you are utilizing half of your available credit. This ratio has an important role to play in your total credit score.
However, remember that it is expected to note a temporary, small dip in the score whenever you take new credit. But think of long-term when you will gain in terms of savings and your credit scores. Thus, debt consolidation is a smart move financially.
4. The opportunity to reduce clutter and stress
Debt consolidation and managing every loan payment through one account will lead to a considerable reduction of stress. It will help in clearing up the mess that comes with juggling multiple payments every month.
Financial responsibilities like debt inevitably lead to worries and stress, but that shouldn’t be the case every time. You need to take control of your money and let yourself remain on top of things by setting up one debt payment account. Not only will this move land you in a better position financially, but also clear your mind.
Did you know stress is closely linked with worsening health conditions like asthma, gastrointestinal issues, depression, diabetes, cardiac diseases, obesity, and Alzheimer’s. Getting a grip on your stress levels makes you feel better both physically and mentally.
5. Pay off debts quicker rather than letting it drag on
It is common for card balances to go on for years before people finally pay it off in full. At the end of the day, your credit cards earn interest on the amount you owe. Thus, lenders do not care if you take five years or twenty years to pay your debt.
One advantage of a debt consolidation loan is that the process involves considering multiple factors while deciding the duration for loan repayment. Lenders usually consider your credit score, current income, and current debt to give you a manageable payback plan. This is one of the reasons why a debt consolidation loan usually has a short payback period.
6. The prospect of having a clear picture of your finances
It is a major stress reliever to spend less time paying bills each month and knowing that you have not forgotten to pay any bill. Surveys have shown that almost one-quarter of cardholders get surprised at least twice or more by higher than anticipated credit card bills.
Getting a clear idea of your finances and knowing that you’ve laid out a precise path going forward is possible when you are not reeling under the burden of surmounting debts. Noticing sustained progress on reducing debt is also a major motivator when you take any positive financial action along the way.
Similar to all other financial moves, you need to carefully assess your situation to figure out whether debt consolidation is the right step for you. However, debt consolidation comes with major benefits that make it a feasible choice for you. It gets all your debts in one easy monthly payment that has a low interest rate. Additionally, it improves credit scores and lets you focus on other financial responsibilities.