Debt can creep up on even the most disciplined individuals trying to handle their finances. One of the ways to get out of debt is consolidating everything into a single loan.
While many people have heard of this option in the past, they might not know exactly how it works. Dutton Lending strives to explain debt consolidation and the benefits that come with consolidating your debt. It’s also important to know that there are some risks involved like anything, but most will find it beneficial in the end.
What is Debt Consolidation?
Focusing on debt consolidation means combining debt from multiple sources into one single payment. A customer will take out a new loan or credit card at a lower interest rate so that they have everything they need to handle in one spot.
Some lenders like Dutton Lending specialize in debt consolidation loans, but personal loans also work for debt consolidation purposes. In this case, it pays off the existing loans and replaces them as the sole loan left for a person to take care of.
Who Benefits from a Debt Consolidation Loan?
Individuals with more than one high-interest loan currently can benefit from debt consolidation. It saves money in the long run, and it makes life a little less hectic by only having to make one monthly payment. It can be easy to lose track of all the different debt issues. Debt consolidation loans keep people on top of what they need to take care of to get back on track.
It’s important to remember that consolidation doesn’t make the debt go away, so there still needs to be the responsibility of paying at least a monthly minimum. Failure to do so can further impact an individual‘s credit score and put them in financial trouble.
What are the Biggest Positives to a Debt Consolidation Loan?
Still on the fence about a debt consolidation loan? At Dutton Lending, customers usually get approved for a loan, thanks to the numerous pros of the process. They help make the loan process run a lot smoother.
Lower Interest Rates
Debt consolidation loans work because they offer a lower interest rate for those who qualify. If the interest rate isn’t lower, there’s no reason to switch over to a debt consolidation loan in the first place.
That’s not to say that every type of debt a person carries will be saddled with a super high rate that needs a debt consolidation loan. For example, some might not put their student loans under a debt consolidation loan because they get a lower interest rate. Meanwhile, credit cards and previous personal loans can have huge interest rates that need to decrease as soon as possible.
Feeling overwhelmed with debt can start to wear on any individual. One of the smart things to do with a debt consolidation loan is to no longer spend time on all the other bills. Combining everything doesn’t save that much time, but having all loans consolidated in one spot lets people know exactly where they stand.
This also greatly reduces the chance of accidentally missing a payment for one reason or another. Too often, people end up paying fees because they miss a payment, even though they have the money to cover it. When juggling four or five different lenders, the odds of forgetting about a loan increases.
Debt consolidation loans, when handled properly, will speed up the payoff process. This becomes possible with a lower interest rate, which allows people to chip away at their debt faster and faster.
When someone starts to pick up steam with repayment, they can increase the monthly payments so that everything gets paid off faster. The light at the end of the tunnel is that much closer.
A lower interest rate and a faster path towards payoff all add up to an improved credit score in the end. People take a slight hit to their credit score when they first take out a debt consolidation loan, but it ends up being a positive when sticking to a payment schedule.
An improved credit score will provide plenty of benefits down the road. It shows responsibility and gains trust in the view of other lenders.
Are There Any Major Negatives to a Debt Consolidation Loan?
As great as debt consolidation loans sound, Dutton Lending is quick to point out that there are some negatives. For starters, some lenders try to hit individuals with a lot of fees. This can be origination fees, balance transfer fees, closing costs, or annual fees. Before signing on the dotted line, make sure that they are not trying to pull off any surprises.
It’s also important to realize that a debt consolidation loan still doesn’t solve deeper financial issues. It helps lower interest rates and makes it easier to stay on top of everything, but money is still necessary to make those payments each month.
Finally, people should avoid falling into bad habits because they are feeling a little bit more freedom financially. Once people see that they are paying things off, they might increase frivolous spending and get themselves right back in a hole.
A Final Look at Debt Consolidation
A consolidation loan is a perfect opportunity for those trying to handle large debt amounts. It’s also a way to get away from high-interest rates that make people feel like they are doing nothing more than treading water.
Dutton Lending suggests researching different lenders and seeing what is out there. With plenty of options to choose from, having flexibility, personal attention, and a low-interest rate makes all the difference in the world.
Krishna Murthy is the senior publisher at Trickyfinance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.