If you’re feeling overwhelmed by the amount of personal debt you hold, there’s no need to panic thanks to the help of debt consolidation.
You may wonder: “what is debt consolidation?” and ask yourself if this option is right for you.
Read on to learn more about the process so you can decide if it’s the best plan of action to help you reduce your debt in a faster, more efficient way.
What is Debt Consolidation?
The concept of debt consolidation is for you to take on a brand-new loan and use it to pay off your existing debts. This type of debt solution usually applies to unsecured debts only, such as a credit card. You cannot include things like a home mortgage in your debt consolidation loan since this is a secured debt.
With debt consolidation, you’ll combine several debt accounts into one lump sum, and then have a new balance with a singular, larger debt amount. In most cases, this option will give you better payoff terms such as a lower interest rate.
Other perks to using debt consolidation are the possibility of lower monthly payments. This will free up your cash flow and allow you to save money or put your extra money toward other payments like a medical bill, for example.
It’s important to keep in mind that you’re not erasing your original debt. With debt consolidation, you’re putting everything into one new loan to help you pay off your debts at a faster pace.
Should I Consolidate My Debts?
You might wonder is debt consolidation a good idea if you’re trying to reduce your payments and get a better rate. If the current interest rates on your unsecured debt are quite high, the answer is a resounding yes.
Lower rates mean you can pay off your debts faster, and you’ll also get the benefit of a lower payment. If you have a lot of different debts and you’re having trouble remembering to pay them all, consolidation will make repaying everything easier.
If your credit score isn’t where you want it to be, debt consolidation can help in that department, too. As you start to pay down your debt, your utilization rate will decrease and your credit score should go up.
When asking what is debt consolidation, remember that its purpose is to help you create a streamlined repayment process. You might feel as though you’ll never get out of debt. When you opt to use debt consolidation, it can give you a confidence boost and a move toward financial freedom.
Combining Debts for a Better Future
Once you find out the answer to “what is debt consolidation?” you can move toward a healthier credit and debt portfolio. Consider the pros and cons to determine if this option is right for you.
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