Introduction to Debt Consolidation
Today I wanted to clear up some of the possible confusion surrounding debt consolidation. What is debt consolidation and how does it work? What are the pros verses the cons of debt consolidation? Will debt consolidation provide you with the debt help you need? By the end of this article you should have most if not all of your questions answered.
What is Debt Consolidation and how does it work?
Debt consolidation is when you take 2 or more of your existing debts and group them together into one payment. You can do this by taking out a loan (from a bank) that is big enough to pay off all of your existing smaller debts. It works well because you can normally get a big loan for a lower interest rate than you would get from a credit card company. The lower interest rate gives you the opportunity to pay off the loan sooner than you would have by paying off each individual debt at higher interest rates.
Pros vs. Cons
Like most things in life, there are pros and cons in consolidating your debt. A few of the benefits of consolidating your debt are as follows:
~ Your one loan will most likely be paid off sooner than all of the smaller debts as the interest rate on a loan from the bank is often lower than that of unsecured debts such as credit cards or pay day loans. Therefore more of your payment goes directly to the principle of the loan rather than paying more towards the interest.
~ It is simpler to make one payment every month instead of making several payments to different lenders or credit card companies.
~ Your creditors will be paid in full by the loan from your bank.
On the flip side, there are a couple of things to consider when thinking about consolidating your debts.
~ If your credit isn’t in good shape, you may not qualify for a consolidation loan.
~ If you cannot afford the new payment, even with the lower interest rate, you may not be approved for a consolidation loan.
~ It is very important to make your payments on time. If you miss payments it can affect your credit rating.
~ If you continue to spend on credit, then a consolidation loan may not help you to get out of debt. Some people feel that they have their debt under control, so they spend more money and get themselves back into the same situation again. If you are going to take out a consolidation loan, make sure you are ready to make changes in your spending habits.
How can you know if Debt Consolidation is right for you?
In order for you to know whether or not a consolidation loan is right for you, let me ask you a couple of questions.
Do you have 2 or more debts that have high interest rates?
How is your credit rating? Is it good?
Do you have enough income coming in to make a payment plan work?
Are you ready to change your spending habits so that you don’t fall into the same spending patterns?
If you answered yes to the above questions, then it would be a good idea to think about taking out a consolidation loan to help pay off your debts faster and with more ease. If you answered no to any of those questions, or you want to learn more about debt consolidation and debt help, call 4 Pillars Lethbridge at 403-332-7361 to make an appointment for a complimentary consultation. We can go over your individual situation and discuss what will be best for your situation. Remember, we work for you not your creditors so your best interest is always what we have in mind.
