Do you have too much debt at high interest rates, and you are looking to consolidate it? If so, it will help to know the following 3 things about debt consolidation before you move forward.
Best Used For Revolving Loans
When you are considering what debts you want to consolidate, it is best to use it for revolving loans. These are the types of loans that have no end date, are not secured, and are typically at a high interest rate. Common examples of revolving loans include credit card debt, payday loans, or personal loans. Other types of debts are known as installment loans, and won't be a good candidate for consolidation. This is due to the loan typically having a better interest rate due to it being secured by collateral, such as your house or a vehicle you purchased.
Goal Is To Lower Interest Rates
One of the goals of consolidating your debt is to lower the interest rates on those loans you have not paid off. This will help lower how much in additional interest you pay moving forward since you'll pay off the higher interest rate loan completely and move the debt to a different lender at a lower rate. If a debt is at a lower interest rate than the loan you will be consolidating everything into, consider leaving those loans out of your consolidation, since you'll end up paying more money over time.
Goal Is To Simplify Payments
By consolidating your debts into a new loan, you'll also have the benefit of simplification. It is much easier to manage and pay off your debts when there are fewer loans to manage. You'll be able to see your remaining balance at a glance, and have to make fewer payments each month towards the balance. This can help simplify the process of paying back your debts moving forward.
Goal Is To Preserve Your Credit
By consolidating your debts into a single loan, you'll be taking a crucial step towards preserving your credit score. You'll have fewer outstanding debts listed on your credit report, and all of those individual debts will go away. It will help your credit report look better to future lenders if you need money, which will help you be approved for a loan at a lower interest rate. This helps you save money over time since you won't be continuing the cycle that gets you further into debt.
Need help managing the debt consolidation process? Reach out to a debt consolidation lawyer in your area.