Debt consolidation is a process that allows a person to reduce their debt by taking out a personal loan to pay off their creditors. It can help them better manage their creditors, reduce their monthly payments into one consolidated amount, free up some of their income and help them get back on their feet.
Here are three unmatched benefits of consolidating your debt:
Eliminates High-Interest Debt
The average credit card interest rate is around 15 – 18 percent, while car loan interest rates average between 1-7%. The interest rate plus the length of your loans can rack up a lot in terms of interest payments. Your debt consolidator can help reduce your interest payment amount via negotiations. If you plan on taking out a personal loan to pay off your debt, securing a loan with a lower interest rate can help you save money.
Reduces Monthly Payments
Having multiple debts can increase your monthly payments, sometimes eating up hundreds of dollars in your monthly budget, causing a real dent in your monthly income, taking away a chunk of your savings. Debt consolidation can help reduce your monthly payments by clearing off the debts with a loan. The new balance you see after clearing your debt should be much lower than what you’re currently paying.
If you fail to secure a loan for debt consolidation, your consolidator can help devise a plan to help pay off your debts one at a time. They could even help bring your interest rate down and reduce the monthly payments as each debt gets paid off, thus speeding up the process and freeing up your income.
Improves Credit Score
Having a mountain of outstanding debt can have a very negative impact on your credit score since most credit reporting agencies look at your payment history while determining your creditworthiness.
With each monthly payment you miss, you rack up more and more late fees that add to your total amount owed, making it even more difficult for you to pay back your debt. The late payments (once they go over 30 days late) get reported to credit agencies and reduces your creditworthiness and credit score.
Consolidating your debt can get the creditors to report your bills as paid, thereby saving your credit score from getting tarnished.