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Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.
Practically every person has contemplated at some time what it would be like to have a large sum of money fall into their lap and help take care of the debts that they currently carry. That may be a fantasy, but the ability to get loans for debt consolidation is not. In fact, a lot of people take out these types of loans to help get themselves out of a tight spot that they are in due to poor credit management from the past. Today, we explore the seven benefits of borrowing for debt consolidation.
Lower Your Interest Rate
The interest rates on debt consolidation loans are typically lower than those that can be had from a credit card or a payday loan. It is dependent on one’s credit score, but they tend to run anywhere from 5% to 35% APR. Those with the worst credit scores may find these loans to still be too expensive. However, those with great credit scores or credit scores that are on the mend can get loans like this at decent rates.
Multiple Payments Become One Payment
Instead of making payments here, there, and everywhere, one can consolidate their payments down to one specific day of the month. They also make just one payment on that one payment date. Thus, they eliminate some of the extra money they are shelling out in minimum payments each month. This coupled with the lowered interest rate adds up to some real money over time.
Debts Are Paid Off Sooner
Depending on your debt load, it is possible that borrowing the debt consolidation loan may be enough to eliminate all outstanding debts that you have. At the very least you can greatly reduce that debt. Yes, you are transferring the debt over to your new loan, but it has a lower interest rate and a more reasonable monthly payment. Thus, you are able to make the payments that you need to in order to get this debt pile taken care of much faster than it otherwise would have been.
Improve Your Credit Score
A debt consolidation loan instantly knocks down your credit utilization rate. This is the amount of money you have borrowed versus the total amount of credit available to you. The lower the utilization rate, the better your credit score will be. That is why a debt consolidation loan has an immediate impact on your credit score, and there is every chance in the world that it will continue to build up your credit score as you make your payments and get on better footing financially.
Reduce Your Stress
It is stressful to try to balance all kinds of different payment dates in your head. It is all too easy to lose track of some of them and miss payments. No one wants to be in those shoes, but it happens to more people than you might imagine. As such, you should work at reducing your stress by just working on paying one payment towards your debt consolidation loan and getting it chopped down. Stop trying to balance all of those due dates in your head.
Prove To Lenders That You Can Manage Money
Perhaps you have made less than perfect money decisions in the past, but that doesn’t mean that you don’t deserve a second chance. Borrowing a debt consolidation loan is a great way to prove to the credit reporting agencies that you do in fact know how to manage your money. You make the payments faithfully and you could see your credit score start to climb based simply on the payments that you make towards the consolidation loan. These are important steps in the right direction towards getting your financial house in order.
Deal Directly With Your Lender
Your credit cards are likely issued from major corporations that don’t see you as a person at all. To them, you are just a figure on a spreadsheet somewhere. They don’t care about you or your situation. Debt consolidation loan lenders are different. You can meet them face-to-face and build a relationship with them that starts from day one. This is better when something comes up and you need to have a frank discussion with them about your repayment options. Deal with a company that cares rather than a soulless large corporation.