Benefits Of Debt Consolidation


Debt consolidation sounds like a favorable way of managing your debt. Let’s take a deeper look at it and find out how it affects your credit rating, what is the process to follow and what are the benefits. There are many ways of consolidation, however, you will need to decide which way will be the best way to approach debt consolidation.

What is Debt Consolidation

This is normally an option when you have too much debt on a monthly basis that you are able to cover with your salary, this can create a lot of negative circumstances and to make matters worse it can lead to other issues such as wellness instability. Debt consolidation has been introduced to allow the customer to put all the debt together and find a solution to settle that debt without paying more than you can afford. There are also many different ways you can incorporate the consolidation process.

Types of Debt Consolidation

    1. Debt Consolidation company:

    This is a company that requires you to take out a loan to settle all your outstanding debt. You will no longer be required to pay the individual creditors on a monthly basis as the debt has been settled once off and you now owe the company and are required to pay them in agreed installments monthly.

    The installment will include the bulk repayment of your debt including the interest that will be paid for the duration of the loan.

    2. Home Equity Loan

    Should you be in possession of your own property, this facility will allow you to borrow up to 80% of the value of your house to repay your debt.This loan forms part of your secure debt portfolio and the bank can retain your house should you fail to make these payments.

    3. Balance Transfer

    This is a credit card with a zero percent interest over a certain period of time. All your debt will be consolidated by transferring it to one card.

    4. Peer to Peer

    These are loans provided by individuals or investors looking for an investment opportunity, usually for the duration of 3 – 5 years.

    Benefits of Debt Consolidation

    ·As your debt is now all one place you will only be required to make one payment every month instead of struggling to pay various different creditors.

    ·You will create peace of mind that your debt is being paid off and your credit record is not suffering because of payments skipped.

    ·On the contrary, by paying your installments in time you are actually increasing your score by paying regularly.

    ·When you consolidate your debt, you will get a loan with a lower interest rate than all the individual creditors’ accounts.

    ·You will save on the installments, making your quality of life better and freeing up some cash allowing you to get by monthly.

    However, consolidating debts should not be taken lightly, you need to ensure you are up to date and understand your repayment terms.You need to practice responsibility in order not to make more debt while the capital of your previous debt is not yet paid off.

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About the Author

M. Rafiq

M. Rafiq is the brain trust behind multiple ecommerce startups, and has become a thought-leader in the entrepreneurial space by providing wisdom and advice based on his decade of startup success. The digital age has opened opportunity to everyone, and M. Rafiq is passionate about providing opportunity to anyone willing to work both hard and smart. He also writes about his personal experience on Financentric.

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