Benefits of Debt Consolidation Loans
January 8, 2021
The thought of merging your debts to get creditors off your back through a debt consolidation loan can certainly be appealing. No more collection letters. No more harassing phone calls interrupting you during your family’s dinner. No more wondering if you’ve remembered to pay everyone this month. Just one bill, one payment, once a month – and with a lower interest rate to boot!
There are a few common attractions people have to the idea of consolidating debts:
- Lower Interest Rates – Some unsecured debts (especially credit card debt) can carry high interest rates in the double digits. Many debt consolidation loans (especially secured loans, such as those taken out against your home’s value) carry lower interest rates.
- Different Type of Interest Rate – If your current debts are at variable rates that may go up, you may be able to not only get a lower interest rate by consolidating debts, but also get a fixed interest rate. The benefit is that you’ll always know what rate you have to pay, without fear that it will drastically increase in the future.
- Lower Monthly Payments – Many people who consolidate debts find that they pay less per month than they were paying to multiple creditors.
- More Time to Pay – Generally when you get a debt consolidation loan, the loan repayment is stretched over a greater amount of time (such as fifteen to thirty years if the loan is in the form of a mortgage).
- One Easy Payment – Rather than writing a few (or many) cheques each month to different creditors (and risking several different late fees if anything isn’t mailed on time), with a debt consolidation loan you only have to write one cheque for one payment.
- Less Hassle – Because you only have to write one cheque, or make one payment, you only have to deal with one lender as well. This is convenient if you want to try to negotiate with the creditor later, such as during a time of financial hardship, rather than having to call several lenders.
- Stop Collections and Foreclosures – By consolidating your debts, your previous lenders are paid off, and you owe money to a new lender. Because those past creditors are paid, they no longer have any need to further pursue collection actions such as law suits or foreclosures against your property. This, in itself, can be a great stress reliever if you were previously concerned about having property sold or wages garnished.
Tip:While debt consolidation loans aren’t for everyone (such as those already enjoying low interest rates, where they may pay more over time with a longer-term loan), they can be a boon for many consumers struggling with debt. Evaluate your own current debts, and determine whether the benefits of debt consolidation would apply to you, and take back control of your finances by consolidating things such as credit card debts, personal loans, student loans, car loans, and even your mortgage.