Is debt consolidation the best move for you? Getting to know the pros and cons may help you to make a better and more informed decision.
An unfortunate fact of life is that personal debt can increase to uncontrollable levels in a short amount of time. One of the best ways of tackling debt is by consolidating your debts into a personal loan. Here are a few things you should consider when applying for such a loan facility.
What Is Debt Consolidation?
If you are drowning in debt or are having difficulties paying multiple loans, with each loan having individual interest rates, balances, terms and conditions – it may be prudent for you to consider combining all these debts into one convenient and easy to manage loan. This loan will only require you to make one single monthly loan payment.
However, there are some things you should consider before making a final decision. Here are some pros and cons of debt consolidation that can help make your decision making process easier.
One Payment, Instead of Multiple Payments
When you take on a personal loan to consolidate all your credit card debts, plus their respective interest charges, you will only have to make a single payment every week or month over an agreed duration of time. Managing all your credit card debts thus becomes a lot easier and much more convenient.
Fixed Rates and Terms
A personal loan features fixed rates and terms that make sure you stay disciplined and diligent in paying off your debt. However, it is recommended that you only commit to loan terms and conditions that you can meet or you may risk damaging your credit score.
Lower Monthly Payments
Increasing the amount of time you have to pay your debts means you will be required to set aside less money every month towards debt repayment. Lower monthly payments however means that you may end up paying more in the end.
Like any other loan, there are certain downsides. Here are some of the drawbacks of using a personal loan to consolidate your debt:
Potential To Increase Your Debt
By consolidating your debt, you are able to free up credit. However, if don’t do this, you may end up spending more on your loan and thus increase the amount of money you owed to begin with.
As highlighted above, a personal loan can help you lower your monthly payments by stretching the repayment duration. However, the stretched repayment period means you end up paying more interest and thus spend more money to repay your debts.
Damaging Your Credit Score
If you fail to be consistent with the monthly payments on your personal loan, you may end up damaging your credit score or even worse, losing it altogether. This can lead to serious financial turmoil.
What Should You Do Before Applying For A Personal Loan For Debt Consolidation
1. Shop around and compare the rates and terms of different loan facilities in order to find one that suits you best.
2. Come up with a convenient and practical repayment plan that allows you to make loan payments easily and still cater to your personal and living expenses.
3. Calculate a reasonable repayment term that works best for you so that you do not increase interest rates or increase the risk of paying late fees.
4. Knowing your credit score is instrumental in securing a personal loan.
Taking control of your debt situation as soon as it starts getting out of hand is the best way to secure your financial future and your ability to get future loans, such as a home or car loan.
You can learn more about LoanOne Personal Loans for debt consolidation here. You can apply online now and get a response within minutes.