Loan consolidation is one of the best ways to cope with an overwhelming number of debts you don’t know how to repay. If you feel that your capacity to pay multiple loans at the same time is straining your financial income, you should consider a loan consolidation plan. Loan consolidation is basically a newloan that rolls all of your outstanding debts into one. You not only get to pay the entire loan in one manageable monthly installment, but you can also determine how long you want to pay off the loan. Whilst this is not a one size fits all solution, often loan consolidation is a great way you can get all your repayments under control.
Benefits of Loan Consolidation
- It reduces your monthly payments. Consolidating your debts means you only have to make a single repayment, instead of multiple small ones ensuring you are not accidently missing anything. Loan consolidation can also increase the period you have to pay your loansultimately reducing theamount you have to pay each month.
- It can reduce the amount of interest paid. Consolidating all of your debts in the one place can reduce theamount of interest you are paying for your loan. Some credit cards can charge up to 23% in interest, whereas a loan may charge around 14%, this saves you a significant amount of money over the life of the loan.
Disadvantages of Loan Consolidation
Although loan consolidation seems like the best way to get rid of debtors knocking at your door, it too has its downsides. Some of these disadvantages are discussed below.
- You have you debt for longer as you can increase your repayment period. If you are in serious financial debt this may be a positive, but for other people, the increase in the time period you hold your debt for may be a negative.
- You may be rejected for other loans or forms of credit. Unless you have paid off all the debts, banks and other lenders may not be willing to approve any of your loan applications. As you will be holding current debt, this will affect your borrowing capability and your credit score.
Loan consolidation has its advantages and downsides. Before going through with any loan consolidation ensure you speak to a professional about your situation, and ensure you are choosing the right solution for your personal situation.