When you find yourself facing seemingly insurmountable debt, one of the relief options you have is debt consolidation. Simply put, this is a way to condense your debts into a single, outstanding loan to pay with different terms than your existing debts, making it easier to track and pay off.
This can be a particularly helpful solution for people facing any of the following financial problems:
- High interest rates. Some types of debt can have extremely high interest rates of more than 20 or 25 percent. Consolidation can help get a lower interest rate to save money as you work to pay off your debts.
- High monthly payments. If you have a lot of debt, chances are your minimum payments are high as well. Consolidation can lower your monthly payments to give you the breathing room you need to get back on track with your repayment.
- Too many bills. Again, if you have a lot of debt, it probably comes from a lot of different sources. Consolidation is a convenient option for people who have a hard time keeping track of all their debts, as it puts them all into one payment plan.
Of course, whether debt consolidation is the right option for you depends on your own financial situation. Most of the time, people who opt for debt consolidation will have a lot of consumer debt. Credit cards have very high interest rates, especially compared to mortgages or auto loans, which generally have very low interest rates (but are spread out over longer periods of time).
So if most of your debt is tied up in mortgages, car loans or student loans, all of which you pay over the course of multiple years, debt consolidation is not likely to be the best option for you. However, if you’ve racked up a significant amount of debt from several credit cards and are buried under high interest rates, this is where you’ll really want to think long and hard about debt consolidation as a legitimate option.
If you need more information about debt consolidation or require assistance in getting yourself out of debt, contact our team at Money Mastery today.