The Advantages of Debt Consolidation: How an All-In-One Loan Can Benefit You

May 03, 2019
debt consolidation

It’s easy to panic when you’re struggling with debt. You need help fast and you don’t know who to trust.

So many financial institutions promise that their debt consolidation program is the solution you’ve been looking for. 

But is debt consolidation truly your best option? Read on to find out. 

Below, we cover the main advantages of consolidating your debts and the two best reasons to do so. Follow this easy guide to find out if a consolidated loan is right for you.

Reason 1: Struggling With Payments

For many individuals struggling with debt, making payments is the most significant financial challenge to deal with. There are many reasons for this.

For example, there are times throughout life when your cost of living increases or your income decreases. First-time parents have to start paying for diapers and baby supplies. A lease renewal may increase your monthly rent payment.

You may be laid off due to company cutbacks. Your boss may cut your hours when business is slow. 

When these things happen, your income may no longer cover your monthly expenses. Paying your bills may not be possible. This leads to late payments, additional fees, and bad credit, which make your financial struggle even more difficult.

Sometimes you have so many bills you lose track and forget to pay one on time. This one late fee can put you behind on all your other bills so that you’re unable to catch up. 

How Debt Consolidation Helps

Debt consolidation helps in situations like these by simplifying most of your monthly expenses into one consolidated bill. You’ll have fewer bills to remember and, thus, less chance of incurring accidental late fees.

Your monthly payment will always be the same amount for the life of the loan. And you’ll negotiate a monthly payment amount you can comfortably afford.

These benefits of debt consolidation can help you catch up on bills and stabilize your financial situation. 

Reason 2: Large, High-Interest Debts

Having a large amount of high-interest debt is the other best reason to consider consolidating your debts. This happens most commonly with credit cards that have a low introductory APR. Once the introductory rate expires, the resulting APR can be very unfavourable.

The immediate result of this is a higher minimum monthly payment that pays more towards interest than to your card balance. Not only could this make monthly payments more difficult, but it also makes it harder to pay down your balance. Ultimately, this adds several years to the life of your debt and thousands of dollars in interest.

How Debt Consolidation Helps

When negotiating your consolidated loan, it may be possible to arrange for a lower interest rate overall than that of your very high-interest debts. But be warned: this not as simple as it may sound, and it certainly isn’t guaranteed to happen.

If your current debts are abnormally high, you’re more likely to secure a lower rate through consolidation. But if you consolidate high-interest debts together with low-interest debts, your new rate may not help much or be even higher overall.

Plus, a lower interest rate typically means a higher monthly payment. To make monthly payments affordable, you may not be able to secure a favourable interest rate.

Finally, even if you do get a lower interest rate, it’s still possible to pay more interest overall throughout the life of the loan. The reason for this is that a low-interest rate plus a low monthly payment equals a very long repayment period. A longer repayment period means more interest payments, which could add up to more than that of the original high-interest debt.

This is especially true since credit card interest can be prevented by paying off the debt early. Loan interest is a set amount that won’t change with early repayment. 

In conclusion, while it’s possible to pay less interest with debt consolidation, don’t leave it to chance. Make sure you check the appropriate calculations before you sign anything.

Get Help With Debt Consolidation

If you still aren’t sure if debt consolidation is right for you, ask! Our financial experts will address your personal financial situation, calculate your best options, and answer any questions you may have. Get in touch with us today for personalized, professional help. 

Now, read our guide on The Most Popular Reasons For Personal Loans.