Handling money is not a piece of cake! There are plenty of people out there who are really financially stressed and probably have no clue how to get back on the right track. Most people when facing an unexpected financial situation or when in a need of something for which they don’t have money in the pocket, end up taking debt. Well, there is nothing wrong with debts; almost every one of us must have borrowed money at least once or twice in our lifetime. But there are many people who end up taking too many debts. In simple words, they take a bit off more than they can chew down.
Well, having multiple debts will obviously make any person stressed. However, there is one way to get rid of this problem too. If you are dealing with multiple debts and really worried about their repayment, then Debt consolidation is the ideal tool to help you in this tight situation.
Debt consolidation
Basically, it is a type of refinancing technique where a borrower who is dealing with numerous debts and liabilities takes a completely new loan that is equivalent to the sum of all the debts of the borrower. This gives the chance to the borrower to get rid of all their debts at once and focus on the repayment of a single loan.
You must be thinking “I still owe the same amount of money, don’t I? “ Well, you have to understand that all your multiple debts combine into a single debt so, instead of scratching your head after so many debts; you will have to worry only about one loan. Thus, even the amount in debt consolidation might be larger but at the same time it is also more manageable. And this allows the borrowers to get debt at a significantly lower interest rate and with smaller monthly instalment.
What about the bad credit score?
Having too many debts does hamper the credit score of a person which is one of the first things that banks check before approval. But there are some well reputed private lenders in the market who provide debt consolidation loans for bad credit people. So, there is no need to panic as there is still a way if any banks reject your application. Now, as you have well understood about debt consolidation, you might think of applying for one as soon as possible. But, you need to have few things in mind already before you sign the deal.
Here, in this blog, we have prepared a list of 5 useful tips that you need to follow in order to get the best from the debt consolidation. So let us get started.
Things to consider when going for a debt consolidation loan
- Make sure it helps in paying your debts faster
Remember that the main objective of applying for debt consolidation is to get rid of past debts faster. So, if this is not something that you are looking for, then try to go with other alternatives. Generally, loans given are taken with the help of monthly instalments for a particular time period say 5 years. So, now if you are going for consolidation, you might have to pay higher monthly instalment loans than you were paying before that will depend on the rate of interest offered to you. Well, if the repayment tenure gets longer due to the consolidation, chances will be there that you might end up paying up more amount than the original loan.
- Only go for a lower interest payment
Another important thing that you have to consider while applying for debt consolidation is to make sure that you are offered a lower interest payment. There is no point in merging your 10%and 5 % loan and consolidate into a 10% loan. Thus, go only if it makes financial sense. The main reason why people go for debt consolidation is that they get a lower interest rate as well as lower monthly instalments. So, if you are going to apply for one, then ensure that you have been offered a lower interest rate and you will have to pay a lower amount monthly.
- Try to pay more than the minimum amount
Well, this is not something not directly related to consolidation but it’s really effective if you really want to get rid of your debt faster. Most people just pay the minimum amount of the debts monthly thinking that they are on the verge of completing their debt, but this is not the reality. Paying more than the minimum amount can help you pay lesser interest in the long run.
- Sell any of your valuable assets
Well, when you have the burden of multiple debts on your shoulder, there is no reason to have 2 Mercedes in your garage. You can clear some of your debts by selling some of the valuable assets that you really don’t need any more. If you will give a look at your house or even your room, you will find plenty of things which are kept as it they are or there was once a time when you actually use. The best way would be to sell them and use the money to pay some of your smaller debts.
Wrapping up, debt consolidation is only effective when you are the offered the right deal and when you know how to make the most of this loan.
