Paying off multiple credit card debts can be tiring. You have to keep track of all your installments and calculate their due date in order to avoid penalties. That is why a debt consolidation loan seems to most like a great idea.
This type of loan will allow you to turn all your payments into one automatically deducted from your bank account balance. Although this sounds perfect, it may be too good to be that simple. But let’s see what a debt consolidation loan entails in order to pay off your credit cards.
1. It will make it easier to organize your finances
Not everybody is good at managing their personal finances. It can be overwhelming to calculate into your budget all the bills, taxes and debts, as well as costs for food and clothing. In the end, something is bound to be left out and that is when the problems start.
Therefore, having one payment to cover them all is practical and that is what debt consolidation will help you with. It might also improve your credit score since now that you have only one payment, you have an opportunity to always pay on time.
2. You will pay a lower interest
Since you will sum up all your credit cards debt into one and thus pay them off you will have one interest rate. Your monthly installments will be lower than the expenses you had while paying several debts. This means that you will even be able to save some money by choosing to consolidate your credit card debts.
3. You will know when your debt ends
With only one loan to pay off, you will know when is your debt-free date. When it comes to credit card debt, you have to make a minimum payment every month. This means that your debt will simply pile up every time you use your card and the payments can seem to last forever.
With debt consolidation loan you will have a fixed repayment with a clear end date. Thus, you will be able to plan some other expenditures or loans. And even pay off your loan early since you will have a more defined repayment plan.
4. When is the right time to apply for debt consolidation loan
It’s important to know when is the time to consider a debt consolidation loan as a perfect solution to pay off credit cards. You certainly won’t take this type of loan if your installments are low, but when you are overwhelmed by the debt that has piled up. Also, if you weren’t able to negotiate a better deal with your creditors and credit card company, it is also a perfect time for debt consolidation.
The best time for a debt consolidation loan is when your payments exceed 50% of your budget. This is the best type of loan to choose to pay off all the outstanding ones and reorganize your finances.
5. Creditor’s conditions for debt consolidation loan
Besides your own reasons to choose to apply for the debt consolidation loan, there are also conditions set by the creditor. One of those requires that you have a good credit score just like when applying for any other loan. You might need to leave a collateral so be prepared for that extra expense as well.
Nonetheless, you will continue to have a problem with payments even if you get a debt consolidation loan if you don’t organize your finances better. After all, you caused your debts to pile up and you can do it again if you don’t respect the conditions by your creditor. A creditor may decline your application if the monthly payments are still too high or if you don’t fulfill their requirements.
Debt consolidation loan is not for everyone and that is why you need to reexamine your overall finances. If you discover that all the payments are burdening your personal budget considerably, then it’s time to visit and consult with your creditor. With multiple debts, you may have trouble to keep up with the deadlines and amounts to pay.
On the other hand, debt consolidation loan offers you one monthly payment for a period of 3-5 years, which makes it easier to manage your finances.