Household debt in the United States has been climbing steadily over the last few years. Credit cards, mortgages, student and auto loans, etc. have been the biggest reasons for this $13.67 trillion dollar balance. This means that individuals are borrowing more money from different sources in order to stay ahead. With multiple different loans needing to be paid on, it is becoming easier to accidentally miss a payment, ruining your delinquency score and possibly your credit.
A shift in the loan space is beginning to take place. Consolidating your debt into one payment method with a lower interest rate is becoming a popular option. Debt consolidation companies make the process of paying back loans simpler and straight-forward. With one rate, the same monthly due date, and only a single payment to be made, could this be an option to help manage your debt?
Reason #1: Resolve Credit Balances
Credit cards work by utilizing a revolving debt plan on your accounts. This means that you have an approved limit in which you could borrow, but don’t necessarily have to. Payments on this type of account fluctuate depending on how much you borrow, but usually have a minimum payment in place to cover the interest charged on the loan amount. In cases where the card holder is only paying the minimum amount on a large loan, paying it off can take years.
With a debt consolidation plan on credit card balances, the loanees balance structure changes to an installment plan that starts to hack away at the principal amount. Installment debt has a start and end point with regular, set payments. This structure begins to decrease the debt quicker and may even raise personal credit scores.
Reason #2: Lower Interest Rates
Financial situations change frequently. One day you may qualify for a 15% interest rate and APR, while in just a few months of payments you could get approved for a 12% interest rate and APR. This difference would make a significant decrease in the amount of money being charged in interest. Being able to not only consolidate debt , but also decrease your interest rate on it helps you pay less in the long run.
For example, with $15,000 in credit card debt at 17.99% interest rate and APR, by making the $20 minimum payment, it would take 253 months to pay off and over $14,000 in additional interest. But by using a debt consolidation company, you could qualify for a 36-month loan term with 12.5% interest and 15% APR and end up paying just over $3,000 in interest.
Reason #3: Adjust Term and Monthly Payments
Depending on your payment objective, you can lengthen or shorten the term of your loan, making your payments larger or smaller on a monthly basis. If you want a smaller monthly payment, look to lengthen your loan term. While on the other hand if you want to get rid of debt quickly, look for a shorter term with larger payments. Either way, a budget can me made with a consistent payment plan in place.
Being able to better manage your debt and get a handle on reducing it will allow you to budget for the future. Simplified payments, lower interest rates, and a better credit score are all benefits of choosing a debt consolidation company. If this option seems like a good fit for you, do your research and find a company that you will feel comfortable with as you decrease your debt and better your financial future.