Introduction to Debt Consolidation
Today I would like to provide a clear picture of what debt consolidation is and how it works. What are the pros verses the cons of debt consolidation? Will debt consolidation provide you with the debt help you need? Could debt settlement be a better option? By the end of this article you should have most if not all of your questions answered.
How Does Debt Consolidation work?
Debt consolidation is grouping 2 or more of your debts together into one payment. This is normally accomplished by taking out a bank loan big enough to pay off all of your existing smaller debts. A loan from the bank will often have a lower interest rate than your credit card companies, so you can save a lot of money just from the interest and use the extra money to pay off the loan sooner.
Pros vs. Cons
Like most things in life, there are pros and cons in consolidating your debt. A few of the benefits of consolidating your debt are as follows:
~ Once you are approved for your consolidation loan, your creditors will be paid in full and you will only have one debtor.
~ Your one loan will most likely be paid off sooner than all of the smaller debts as the interest rate on a loan from the bank is often lower than that of unsecured debts such as credit cards or pay day loans. Therefore more of your payment goes directly to the principle of the loan rather than paying more towards the interest.
~ It is simpler to make one payment every month instead of making several payments to different lenders or credit card companies.
On the other hand, there are a few things to consider when thinking about consolidating your debts.
~ You need to qualify for a consolidation loan. If your credit isn’t in good shape, you may not be approved for the loan.
~ If you do not make enough money to afford the new payment, even with the lower interest rate, you also may not be approved for a consolidation loan.
~ It is very important to make your payments on time. If you miss payments it can affect your credit rating.
~ If you think you can just go get a new credit card after you take out a consolidation loan and keep spending, then a consolidation loan may not help you to get out of debt. Some people feel that they have their debt under control, so they spend more money and get themselves back into the same situation again. If you are going to take out a consolidation loan, make sure you are ready to make changes in your spending habits.
How can you know if Debt Consolidation is right for you?
In order for you to know whether or not a consolidation loan is right for you, let me ask you a couple of questions.
1. Do you have 2 or more debts that have high interest rates?
How is your credit rating? Is it good?
2. Do you have enough income coming in to make a payment plan work?
3.Are you ready to change your spending habits so that you don’t fall into the same spending patterns?
If you answered yes to the above questions, then it would be a good idea to think about taking out a consolidation loan to help pay off your debts faster and with more ease.
If you answered no to any of those questions, or you want to learn more about debt consolidation or find out if debt settlement could be an option for you, call 4 Pillars Medicine Hat at 403-332-7361 to make an appointment for a complimentary consultation.
We can go over your individual situation and discuss what will be best for your situation. Remember, we work for you not your creditors so your best interest is always what we have in mind.
