3 Reasons Why You Should Consolidate Your Debts

Consolidating your debts can be one of the most effective ways in improving your finances. If you have several debts or have been thinking about debt consolidation here are three reasons why you should.
1. Lower payments
Your weekly (or monthly) payment amount is usually reduced when consolidating your debts. The main reason behind this is the length of time you have to pay off your debt. If you consolidate a personal loan into a home loan for example, your payment schedule goes from 5-10 years up to 20-30 years, which will reduce your regular payments significantly. The same can apply with personal loans as your consolidation loan will almost always take the form of the loan with the longest repayment time. Another reason the payments are lower is the reduced interest rates which I will cover next.
However there is a downside to this. Extending the life of your loan will also increase the amount of interest you pay over for the loan. If you can afford your repayments it may not be necessary to consolidate into your home loan for example. However if your repayments are too high, a consolidation loan would reduce payments.
2. Lower Interest
Consolidating your loans can significantly reduce the interest rate you are currently paying. At the time of writing this credit card interest can range between 10-30% p.a, and consolidating your credit cards into a home loan which is around 5-7% p.a can save you heaps. Generally when consolidating How Banks Evaluate Loan Requests your debts you choose the loan that has the lowest interest rate so even a personal loan will have some interest rate savings. In addition if you choose to consolidate with a secured loan, (a loan that uses your assets as collateral) you can save further on the interest rate you pay.
3. Simple Business Loan Assessment Payments
Lastly one consolidated loan is much simpler to manage than several loans and credit cards. Instead of managing 5-6 payments with different amounts and interest you only have to budget for and pay one simple regular payment. Besides the obvious advantage of saving time and hassle many people find that they benefit from not paying fees such as late fees because they no longer struggle to keep track of all the debts.
So that was the three main benefits of debt consolidation. If you struggle with your debts and your repayments, consolidating your debts could improve your financial situation significantly. If you are thinking of applying for a consolidation loan it is recommended you speak to your accountant or a consolidation expert first.

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