Debt consolidation is something that really took off following the start of the financial crisis in 2008. Prior to that time, the debt consolidation loan was something used only by a small number of consumers who found themselves over their heads in debt. But with the financial crisis came bigger debt problems caused by falling property values and a stagnant economy. Debt consolidation was a godsend to a lot of consumers.
Should you consider a debt consolidation loan? Only you can answer that question in light of your current financial situation. It might be a good idea for you to seek some advice from a financial charity or a professional advisor if you think that consolidation is an option that could help you.
In light of that, we will now give you three reasons why you should consider a debt consolidation loan.
1. An opportunity to pay less interest on your debt – It is not uncommon for those applying for debt consolidation loans to be heavily in debt to credit card companies. Credit card debt is especially expensive because it is unsecured and, therefore, prone to higher than average interest rates. The first reason to consider a debt consolidation loan is the fact that it can reduce the amount of interest you pay whilst servicing your debt.
Consider that credit cards can have interest rates as high as 29% in some cases. By contrast, debt consolidation loans taken as secured loans against property equity are more in line with mortgage rates. It should be obvious that a debt consolidation loan is cheaper than continuing to pay on high interest credit cards.
2. A debt consolidation loan is a good way to pay off what you owe without increasing your indebtedness. This is key. Where a credit card is open ended and allows you to continue charging even as you’re paying off, a secured loan has a predetermined settlement date that will conclude your debt for good. If you have no need to increase your debt, a debt consolidation loan is an excellent tool for finally paying off everything you owe.
3. The ability to cut your regular spending – You might find yourself in a position in which your budget is stretched to its limits due to multiple high interest debt payments. With a debt consolidation loan, you might be able to combine all of those other payments into a single monthly payment that costs less overall. This will provide some relief to your budget and help you get things back on track.
For more information on how debt consolidation loans work, please click here.