Debt consolidation is an option many people consider when attempting to organize their finances and pay off their debts. Here are four important facts about consolidating debt.
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1. It Can Help Streamline Your Finances
Debt consolidation is the process of rolling two or more existing debts into one account. This means you will have only one monthly payment and one interest rate.
This means there are fewer accounts and payment plans you need to worry about. You can talk to an expert at an organization such as Symple Lending about whether debt consolidation can help you streamline your finances.
2. There Are Two Main Consolidation Methods
The two main consolidation methods are debt consolidation loans and balance-transfer credit cards. A debt consolidation loan is typically a fixed-rate loan and allows you to pay off your current debts. Then you only need to repay the debt consolidation loan. A balance-transfer credit card requires a good credit history.
It allows you to transfer existing credit card debts onto a single card. Other options, such as home equity loans, also exist. Talking to an experienced debt consolidation agent can help you determine which method, if any, is right for you.
3. It Can Affect Your Credit Score Positively or Negatively
Debt consolidation will affect your credit score. It’s up to you whether the effect is positive or negative. If you make your monthly payments on time and are able to pay off your debts without accruing more debt, your credit score will improve. If, however, you accrue more debt, miss payments, or make payments late, your credit score will likely be affected negatively.
4. You Need To Keep the Drawbacks in Mind
While there are many benefits of debt consolidation, there are also several drawbacks you need to keep in mind. The consequences of missed payments can be more severe because your credit score will be affected more greatly. You may be required to pay additional costs or deal with higher interest rates than you expected.
The longer repayment term means you will likely accrue and need to repay more interest over time than you would with your previous debts. It’s also not a solution for any underlying financial issues, such as unhealthy spending habits.
Debt consolidation is one of many financial restructuring methods available to people. If you’re considering consolidating your debt, make sure you discuss your options with a qualified expert before making any final decisions.
