How Debt Consolidation Speeds Up Financial Recovery
Debts grow at massive speed. If you don’t manage it well, your $100 debt can turn into a thousand dollars, especially if you are too busy to handle them. So, before you head quickly to bankruptcy, consider applying for debt consolidation loan. It is a constructive solution to help you deal with a bad credit situation, especially when there are varying due dates, and interests involved.
How Consolidation Works
Simply put, debt consolidation is about putting all your debts into one place and making it more manageable.
For example, when you apply for a consolidation loan, you are going to use the money to repay all your existing loan balances. Since you have paid them all, you only have a single loan to pay. The pressure of paying multiple loans with different payments schedules and rates is lifted and you can manage your repayments easily. Plus, you will put a stop to increasing interest and penalties caused by unpaid debts and save money on interests. In fact, when you consolidate, your monthly payment may also be lower than all your monthly payments for your previous debts combined. This will improve your cash flow; clear your debts with one go and ultimately increase your credit score.
Here are the undeniable benefits of debt consolidation:
- It offers more manageable terms than your existing loans
- You can save money on interests, which could mean lower interests and monthly repayment than all of those debts combined. You can use the extra freed up cash for other expenses.
- It vastly improves your credit score, simply because your utilization rate lowers and your credit balances turn to zero. Getting an installment loan can also improve your credit mix.
- You don’t have to go down the road of bankruptcy which could stay on your credit file for many years.
Debt consolidation can cause a dramatic turn in your finances. But, it is important to remember that consolidation is not forgiveness. You still have debts; only that, it is summed up in one loan. The moment you replace your multiple debts with a single debt, it becomes manageable and convenient to pay.
So, what must you look for in a consolidation loan? It must be affordable. The interest rates and fees must be within your budget so that you can repay it on schedule.
Maximize the benefits of Consolidation
If you don’t want to be trapped in debt and get over an overwhelming financial situation, follow these tips:
Create a spending budget.
But, first it is advisable to study your budget in the previous months. Make a list of your expenses–how much money is coming in and how much is coming out, and how much you have left. Calculate your net income each month, deduct your usual monthly expenses and list your discretionary expenses such as clothing, entertainment and the like. Then, analyze your spending patterns and see if there are some adjustments that you can make. Finally, make a budget that is both realistic and systematic. If there is a huge gap—meaning, you cannot possibly repay your debts and at the same time cover your daily expenses, it is time to look for financing.
Get copies of your credit file from the 3 major credit reporting agencies in the country.
It may help you find old debts that you may have forgotten already, correct inaccurate reports and clean up your file.
After structuring a budget, and getting a full list of your creditors and your outstanding debts, contact your creditors one by one.
See if you can find a comfortable solution that would make your debts more manageable. Some of them may offer forgiveness of penalties while others may simply extend the loan term to give you more time to pay the debts.
Seek credit Counseling.
If there is a credit counselling organization in your area and you think you can get a little help in the areas of budgeting and money management, contact them. You can also use some advice from friends or family members who have great finance management skills. It is because debt consolidation loan is only a tool to help you clear up your debts, and make it more manageable to pay. But, if you still have some doubts as to your money management skills, getting advice from people who saved a lot of money and invest them into something profitable can help.
- Use your debt consolidation loan wisely.
Make sure that you have a sound debt management plan so you can repay your debts based on your financial situation. You can talk to your loan officer about the best money management, strategies that could help you make payments on time until you have fully completed your payments. One of the most attractive debt consolidation options is a second mortgage or a home equity loan. It offers lower cost of credit, great tax advantages and low monthly repayments. To consolidate your debts, contact Debt Consolidation Australia.