Negosentro.com | Many consider debt consolidation loans bad credit solutions as financial miracles in that they work well in providing borrowers with workable means to pay off their debts. People with bad credit often have trouble managing their debt payments, such as for several credit card accounts. As the term implies, debt consolidation is a financing plan that lumps all of a borrower’s outstanding debts into a single payment. The borrower essentially takes out a loan from a lender to pay several debts in full and then pays off the loan to the lender usually at a lower interest. The following are the main advantages of debt consolidation, and why some view it as a financial miracle.
Easier Monthly Payments
The most obvious advantage of consolidating all of your debt is that you only have to work at making just one payment each month. This is a welcome alternative to dealing with different deadlines and having to make several payments on a monthly basis. Managing your finances will be significantly easier as you can focus on just one debt, and it may even allow you to pay it off faster.
Lower Interest Rates
Debt consolidation plans are easier on the borrower as the interest rates are lower than what credit card companies charge. Lowering the interest rates benefit the creditors, as well as they, are more likely to collect payment from a borrower. Since the payment plan is spread over a longer time, it also ensures a steady stream of revenue for the creditors.
Relief From Stress
Being able to pay off several debts at one go can give a borrower instant relief. As mentioned earlier, borrowers also free themselves of the burden of having to juggle several payments over multiple deadlines every month. The ease of dealing with just one debt payment each month enables borrowers to pay more attention to other aspects of their lives.
Stop the Calls
Once you are in debt and start missing your monthly payments, you become fair game to third-party collection agencies. Such calls are not only annoying, but they can also come at inopportune times, causing you even more stress and anxiety.
Improve Your Credit Score
With an easier payment plan and lower interest rates, you’ll find it easier to pay off a debt consolidation loan and make your payments on time. Although taking out a debt consolidation loan might hurt your credit score initially, you’ll be able to improve it down the road by making your payments on time consistently.
Is a Debt Consolidation Loan Right for You?
Debt consolidation is an ideal solution for people who:
- Owe more than $10,000
- Have to make several credit card payments
- Are paying high-interest rates
- Having trouble paying or making payment deadlines
You may also be able to get tax breaks if you have secured your debt consolidation loan with an asset. If home equity is involved in your debt consolidation loan, the interest payments are tax-deductible.
Before applying for a debt consolidation loan, make sure to shop around for a creditor that offers a payment plan that will be easy for you to handle. It will also be a good idea to narrow down your choices to reputable lenders and established financial institutions.