Through consolidation loans, you get a loan to settle your credit card accounts and you are responsible for paying a single loan.
Advantages of debt consolidation loan
Consolidate your debts means combining all your debts in a single loan at a lower interest rate or for a longer period of time to be able to settle them. If you have a lot of debt and monthly it costs you a lot of work to keep up with the payments of each one, consolidating your debts can be a good option for you.
Many times the debts of the credit cards are about to go out of control and it is necessary to take action to avoid becoming over-indebted. A common repayment strategy is the consolidation of debts. This strategy is not ideal for everyone, so you should inform yourself about the advantages to make the best decision. To find out if a debt consolidation loan suits you, analyze your specific financial situation taking into account the following advantages
You reduce your monthly expenses
By consolidating all your debts in a single payment, the minimum monthly payment of this new debt will be less than the sum of all the monthly minimum payments of your old debts. You go from administering many debts to administering only one. This can greatly simplify the management of your personal finances.
Combine several payments in one
It allows you to organize yourself and the convenience of making a single monthly payment. If you have good credit most of the options to consolidate your debt either a personal loan or a line of credit on your home, offer you lower interest rates than those of credit cards.
Reduce monthly payments
If the interest on your new loan is lower, it is very possible that your monthly payment is also lower. Also, if you pay on time and consistently you would avoid any type of penalty for delinquent payments and for exceeding the credit limit. Pay 100% to your creditors. It would liquidate debts to your creditors and preserve a positive payment history if the accounts have been in good standing with your creditor.
Very good, what’s next?
When you consolidate your credit card debt, you are obtaining a new loan. You have to repay the new loan just like any other loan. If you get a consolidation loan and continue to make more purchases with credit, you probably will not succeed with paying off your debt. If you have problems with credit, consider first contacting a credit counselor.
Consolidation means that you’re various debts, whether they are credit card accounts or loan payments are grouped into a single monthly payment amount. If you have multiple credit card accounts or loans, consolidation can be a way to simplify or reduce payments. However, a debt consolidation loan does not erase your debt. In addition, you could end up paying more when consolidating debt in another type of loan.
Before using a consolidation loan
Take a look at your expenses. It is important to understand why you have debts. If you have accumulated many debts because you are spending more than you earn, a debt consolidation loan is not likely to help you get out of debt, unless you reduce your expenses or increase your income. Make a budget. Find out if you can pay your existing debt by adjusting the way you spend, for a period of time.
Try to contact your individual creditors to see if they would agree to reduce your payments. Some creditors may be willing to accept lower minimum monthly payments, avoid certain charges, reduce your interest rate or change your payment date to better match your income to help you pay off your debt.
Debt consolidation loan and transfers of credit card balances
Many credit card companies offer balance transfers with a zero percent interest or with very low interest, to invite you to consolidate your debts into a single credit card. The promotional interest rate for most balance transfers lasts for a limited time. After that, the interest rate of your new credit card may increase which would increase the amount of your payment.
If you are behind more than 60 days in payment, the credit card company can increase the interest rate on all your balances, including the balance you have transferred. If you decide to make a credit card balance transfer, avoid using that card for other purchases, at least until you have paid the transferred balance. This will help you pay off the balance more quickly and avoid paying interest on the other purchases. Banks, credit unions and other lenders offer loans for debt consolidation. These loans accumulate many of your debts in a single payment. This simplifies the number of payments you have to make.