Debt Consolidation Plan: When You Should Apply for One
You probably wonder what exactly is a debt consolidation plan and how it can be a helping hand. To give you a proper definition, this is a type of refinancing program that gives you a chance to combine all your unsecured credit facilities, such as credit cards, renovation loans, or different types of personal loans. To put it more simply, you will have only one loan under one bank and at a lower interest rate, which will cover all your loans. So, you will get to pay for only one loan, not for all of them separately.
Another good part about this is that you will also have a revolving credit, which will be more like an emergency fund. Even so, pay attention to this one because the maximum amount you can have represents your monthly income. There will not be a doubled or tripled amount of your monthly income, but it is a good source of extra income. However, be careful of how you’re spending the money. This fund is, indeed, for daily essentials, but you have to think about the fact you will add the sum to your outstanding balance.
If you find yourself in a situation where you have multiple payments to make at different banks, then you might know the feeling of not knowing what you have paid, what you forgot to pay and what you owe. In addition, it can be a hassle to keep up with every interest rate of every credit institution. This is the part where the debt consolidation plan helps you: in only one place, you can keep track of every payment you owe.
Debt Consolidation Loans: How Does It Work?
Now, because we have an overview of the one presented above, let’s dig in more. Probably, you also heard about the term we will discuss next, which is debt consolidation loans. It may sound the same as the first one, but in fact, their purpose is kind of different. But no matter for which you decide to apply, there will be only one monthly payment.
To start with a definition, a debt consolidation loan will lend a hand to pay off several debts you might have. Usually, how this entire process works is simple: you just apply for this type of loan, and you will have the necessary money in order to pay off your debts. After you do that, you have to pay back the loan over a certain period, which can be anywhere from one to seven years. This period is usually set by the lender, but you can also have the possibility to negotiate or select a certain period suitable for you.
There is one thing you have to pay attention to. Be aware of the type of interest rates because there are fixed and adjustable ones. Most of the time, you will find debt consolidation loans with fixed rates. A good part about this is that the amount you have to pay will never change, and you will pay the same sum every month without worrying if the price will rise.
What You Should Keep in Mind
Now, we have a better understanding of both of the terms presented above. Like any other thing, each of them has advantages and disadvantages. It is better to know about these things before deciding which to apply for because you have to put some things in balance and think about which one of these two might work the best for you. So, let’s dive into it and make a comparison. In the end, the choice is yours.
Starting with the first one, the debt consolidation plan, we discovered that it combines your debts into one monthly payment, giving you simple access to what you have to pay. Moreover, you will have to pay only one loan, and you also can get lower interest rates. However, there will be some challenges you might encounter during this process. An example is that this plan requires a lot of self-discipline. If you don’t pay everything on time, you risk having more debt in the end, which will only get you nowhere since debts are the reason why you applied for this.
Like the one presented above, debt consolidation loans come in a package with both good things and some considerations. To recapitulate, we saw that by applying for this one, we will have the money we need in order to pay the debts, which is definitely a big help. Even so, we still have to keep in mind that there are also some trade-offs. For example, you can hurt your credit score when you decide to take out a loan, which could affect your future loan qualifications. Furthermore, in order to qualify for good interest rates, you should own good credit.
Conclusion
Life is full of choices, and because of this, we always have to decide what is best for us. Especially when we talk about loans and different debts we might have, we should pay attention to the best alternatives. A debt consolidation plan will be a great aid in helping you with compressing all your loans into one. In this way, you will have better tracking of your payments. No matter what you choose, you should always have updated information regarding the interest rates and fees, and don’t forget that this process requires a lot of self-discipline.
