Consolidation of debts is meant for people who are in a financial turmoil and require assistance in finding a way out of this financial crisis. Moreover, consolidation of debts could be a fruitful process even for individuals whose financial condition is still not out of control. It is actually a matter of understanding what consolidation of debts entails and determining your objectives that you need to accomplish and identifying the effective tools for achieving those targets or goals.
What Is the Essence of Consolidation of Debts?
Simply speaking, consolidation of debts entails borrowing of money from one single source for paying off multiple debts from a number of sources, but while the creditors are changed, you could also modify the nature of your debt and accordingly you could alter the interest rate terms, as well as, restructure your specific loan repayment schedule. This would certainly make it possible for accomplishing additional targets such as:
Far More Organized Way of Bill Paying
Many of you have major difficulty in keeping track of multiple bills. So it becomes much easier with debt consolidation as you would be using only a single credit source for paying off the others. This way you could be effectively narrowing down your bill-paying burden every month. This could help in simplifying your communications as well.
Reduced Monthly Payment
Sometimes you are confronted with monthly debt obligations that are impossible for you to fulfill. You are almost on the verge of not being able to make the necessary monthly payments. In such situations, it is important to consolidate your multiple debts and opt for restructuring your specific loan repayment schedule. This could be effective in lowering your monthly payments and allowing more breathing space for your budget.
Lowered Interest Rates
Most individuals are under the burden of ever-mounting debts thanks to high-interest credit resources. By consolidating multiple debts, you may get the chance to lower the interest rate simply by shifting to a single and a relatively lower rate of interest source.
Long-Term Interest Expenses Slashed
Either by the acceleration of repayments or reduction of interest rates, consolidation of debts could assist you in cutting down long-term interest expenses.
Possible Risks of Consolidation of Debts & Ways to Avoid Them
While consolidating your debts, you must always be careful and watch out for the four possible traps or risks that may be associated with the process.
Amplified Interest Expense
Individuals who are experiencing a financial crisis are often tempted to cut down their monthly payments mostly by spreading or extending their debts over a longer period of time. You could end up paying more interest eventually. So restructuring of your loan repayment schedule should be done with care and expert assistance.
Variable Payment Traps
Individuals requiring immediate financial assistance often end up signing and agreeing on debt restructuring which could make immediate payments much easier to pay but this could make future payments more burdensome thanks to balloon payments or variable interest rates or both. You must analyze both the short-term and the long-term consequences while you are tweaking your debt program. Do not opt for any restructuring if you do not have any realistic repayment plan.
Desperate for financial assistance, individuals in debt distress may seek help from the wrong people in the business of debt counseling. So, you must do proper homework and background check if you are seeking professional help. You must never consolidate your debts as simply an act of complete desperation. You must consolidate your debts with a lot of deliberation and after proper homework. The cooler you stay the better are your chances of success. Debt issue has been nagging many people and as per survey reports American households are having $10,000 debt on an average. It is a big headache for many individuals to pay back multiple debts, so consolidate your debts if you are looking for an effective solution to this issue.
Cutting down on interest is key to helping people escape the debt trap … great post!
I definitely agree! That makes a huge difference.