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Debt consolidationis a way to reduce the amount of work it takes to pay off each of your loans separately. In this one payment system, you can reduce your repayments through personal, payday, or consolidation loans. But is it a good idea to do so?
Debt Consolidation Consolidation is a one-shot way to reduce the number of repayments someone has to make. You can keep all your payments under one option when consolidating your debts. The option can also sometimes reduce the interest rates on your existing debts when your concern is managing your expenses.
How Does Debt Consolidation Work?
The primary work of consolidation is collecting all your separate loans into one personal loan. It has a rate of interest that does not change over the defined term. You have to take out a separate loan–the consolidation loan—to pay off all of your individual loans. A simple monthly payment is all you have to do to repay the consolidation loan.
Debt consolidation can reduce the interest you pay on your existing loans. Let’s take an example scenario. Suppose you have five different channels of loans through credit cards or the bank. On each of these channels, you have a different interest rate to keep up with.
You can aggregate all those loans when you take a consolidation loan through a service or bank. Therefore, you can use the new loan to pay off your previous loans. Ultimately, that leaves you with only one bigger loan to repay. Additionally, you can get a lower interest rate on the consolidation loan, which will significantlyreduce your repayments.
The Pros Of Debt Consolidation
Now that you know what debt consolidation is, it is time to learn whether it is worth it. While consolidation may involve risks, it can simultaneously solve many of your problems. So, let’s consider what benefits you may get from debt consolidation.
Fixed Interest Rate and Schedule
However you choose to consolidate your debts, the interest rate can be fixed. Having a fixed APR can prevent any chances of unseen payments or unpreparedness. The timeline is also set – so you can draw up a plan or goal to ultimately pay off your debts.
Fewer Payments – Streamlining Your Finances
One of the most significant selling points of debt consolidation is how it can streamline all your payments into one. With one consolidation loan, you can aggregate and pay off chunks of your debt at a time. The process can save you time and prevent you from missing any of those separate payments.
Chance To Save More On Payments
Suppose you had a plan to pay off your separate loans on each channel. With a consolidated loan, you can potentially save money by paying them all at once. The savings can give you a chance to pay more for your consolidated loan. Ultimately, you can reduce the term of your loan further and be debt-free faster.
Potentially Lesser Interest Rates
Depending on the factors of debt consolidation in your case, you can get a lower APR for your consolidation or personal loan. You can calculate whether the lower interest rates are practical compared to the combined rates on your separate loans. If the APR is lower, it can reduce your repayments significantly.
Can Increase Term Of Payment
With debt consolidation, you can get a chance to increase the term of your repayment. The consolidation loan can be extended if you have separate loans with tighter terms. So, debt consolidation gives you a second chance to repay your loans on a more relaxed timeline than with your previous loans.
Improve Your Credit
If your consolidation loan is stable, it can boost your credit score. Making payments on time and at the correct monthly amounts can help you achieve that. You can cut off your unstable repayments from separate loans by using debt consolidation. And ultimately, the effects will reflect on your credit score.
The Cons of Debt Consolidation
Debt consolidation is not all positive. Like every financial move involving loans, debt consolidation also comes with risks. It would be best if you looked out for some things before leaping a consolidation loan.
Qualification Rules are Strict
Many debt consolidation programs or services will have requirements for potential askers. Within these, they can review your credit history, income, and financial stability. While debt consolidation can seem like a lifesaver, you only qualify if you can prove your worth in the qualification phase.
Maintenance and Upfront Fees
The lender could ask for payments to maintain the consolidation loan you take out. The costs will be upfront – and may entail a list of fees for balancing, organizing, etc. To make sure you do not get hit by them all at once.
Potentially Higher Interest Rates
With a high consolidation loan comes high-interest rates. Although it is not a given that your APR will increase, it can be high depending on your existing finances. The debt consolidation process can cost you more in interest in the following ways.
●Higher monthly interest to compensate for lower credit scores or loan amounts.
●A long-term consolidation loan results in higher payments overall
Risk Of Missing Higher Monthly Payments
The monthly repayments on your consolidation will be higher than each of the separate repayments you must make. Because you are bound to pay a higher amount each month, there is a risk of missing a payment. When you cannot make a payment on your consolidation debt on time that can also carry negative consequences.
Need Help Or More Information? Contact EFT Capital
EFT Capital is providing support with loans across Australia. Whether a personal loan, debt consolidation or business loan – our specialized staff can help you with a fast and easy program.
EFT Capital has been active for 20 years, providing seamless service to our clients. If you want to inquire about a loan or like to learn more, contact us in our Gold Coast office or apply online.
Conclusion
Debt consolidation is a one-off way to reduce repayments on several debt channels. Whether from personal or payday loans, consolidating loans can come to the rescue and give you a stress-free repayment term.