When you have a lot of debt to cope up with, you often think of consolidating it all to reduce the burden and complications. You basically take out one loan to pay off many others. Although it sounds like the simpler way out when handling your finances, you need to know everything about it. It doesn’t only help you collaborate all your loans, giving you the convenience of servicing only one loan, it also helps you avail of a lower overall rate of interest.
Is debt consolidation a good idea?
Although it sounds like a great way of paying off your Personal Loans or accumulated Credit Card bills, is it the smarter way to handle things as well? Well, it differs from person to person. If you’re a shopaholic who can never seem to keep your expenses under control and overuse your Credit Cards every month, taking a new loan to repay your existing Credit Card expenses might not be a great idea. Even though it’ll help you repay on time, it’ll indirectly encourage you to shop more as well. So, instead of limiting your extra expenditure, you’ll end up increasing it month on month, and that’s not a great plan.
But in case you have it all under control and know how to balance your finances well, you don’t need to worry too much before opting for debt consolidation.
Why is it important to plan it well?
Debt consolidation can be your greatest saviour when it comes to getting all your existing loans and debt under control. But, it also needs to be handled with extreme caution if you want to avoid any complicated situations later. You really need to do your math well before deciding to opt for debt consolidation. Just because you have all your loans covered up under one, doesn’t mean you have the freedom to take up additional debt.
Losing track of all your finances can land you in trouble later, with additional debt piling up, thanks to your carelessness. It, therefore, becomes essential to plan and execute your debts well.
Additional Reading: Should I Take Personal Loan To Pay Off My Credit Card Dues?
How to get a debt consolidation loan?
After having analysed your financial status, you can decide whether going for debt consolidation is a good idea or not. In case you decide to go for it, you need discuss this with your bank and take things forward from there. Before finalizing on one debt consolidation loan, it’s advisable to explore the offers of various banks first. Some financial institutions even offer you this loan on fixed rates of interest. So, you must explore well before settling for one.
If you’re confused about how to go about managing your debt, you consult consult a credit counsellor for assistance. There are many companies that offer credit counselling at a charge.
What are the best ways to consolidate debt?
There are two ways of consolidating all your debt. You could either opt for a debt management plan or apply for a loan to help you pay off your existing ones. If you already have a number of other financial commitments, you obviously wouldn’t want to opt for another loan, right? The good news is that even without taking a loan, you can still consolidate all your debt. According to most financial experts, opting for a debt management plan is the smarter way to handle debt. A debt management plan is where a credit counselling agency will negotiate your debt on your behalf. They will try to bring it down as much as possible. Usually, one bill is arranged across creditors based on your income and expenditure. You must try opting for plans offered by non-profit organisations, as they’re the ones recommended by most experts. After a detailed credit counselling session, they’ll tell you how much you must pay the creditors every month.
In case you can afford to take another loan, go ahead and apply for one. All you need to be careful about while choosing the right loan is that it should have a fixed rate of interest and should be lower than what you were paying earlier. That’s the only way it’ll make sense for you to opt for another loan. The only drawback is that you might get an extended loan repayment period. Although this will reduce the burden of your EMIs, the total interest that you pay will be higher. So, opt for this only as a last resort.