Between making your credit card payments, home loans, or even student loans, it can be quite stressful to keep track of one’s payments and outstanding debts. The most efficient way to streamline your finances would be to consolidate all your debts into a single loan payment with a manageable monthly payment structure. However, it will still not get you out of the financial predicament. You must understand the pros and cons of debt consolidation. To help you know if debt consolidation is the ideal option to pay off your outstanding loans, our team of experts at Matrix Mortgage Global will walk you through the pros of which this financial strategy is a popular choice.

Do we think debt consolidation is a good idea?

Debt consolidation is a fantastic option for those individuals who have several loans that are of high interest. However, this strategy only applies if your credit score has improved since applying for the original loan. If your credit score is not high enough to qualify for a lower interest rate, it may not make much sense to consolidate all your debts into one loan. You might also need to think twice about consolidating your debt if you haven’t addressed the important problems that led you to the situation you are in financially, which could be overspending, paying off multiple credit cards with a debt consolidation loan is not the way, as it can lead to much more financial issues down the line. Below-mentioned is some of the advantages of debt consolidation:

Streamlined payoff:

Consolidating all your debts can ensure your payoff are more streamlined, and it will also lower your interest payments.

May make the payoff process be accomplished more quickly:

If your debt consolidation loan is accruing less interest than an individual loan, then try considering making additional payments with the amount you save monthly. This can significantly help in paying off the debt earlier, thereby helping you save even more interest in the long run. Bear in mind, that debt consolidation ideally leads to much more extended loan terms, so you must make it a point to pay your debts as early as possible and take advantage of this financial benefit.

Significantly reduces your monthly benefit:

When consolidating debt, your overall monthly payment is likely to decrease because future payments are spread out over new and extended loan terms. While this can be an added advantage from a budgeting standpoint, it also means that you could end up paying more over the entirety of the loan, even if the interest rate is low.

Allows you to repay your debt sooner:

A debt consolidation loan may quickly help you repay your debt sooner, especially in the case you have significant credit card debt. Credit cards don’t have a set timeline for paying off the balance, but a consolidation loan has fixed payments each month with a clear beginning and end to the loan. Another added benefit of paying the debt faster means that you may end up paying less interest overall. Additionally, the faster your debt is paid off, the sooner you can start putting your funds into other goals like retirement etc.

Debt consolidation simplifies your finances:

When you consolidate all your debt, you no longer have to stress about several due dates every month because you only have to make one payment. Also, every month, the amount to be paid will be the same. So you know exactly how much money you need to keep aside. It also simplifies budgeting and creates lesser opportunities for one to miss a payment.

Lower interest rates:

Interest rates vary depending on the individual’s credit score, loan amount, and term length. You are likely to get a low-interest rate with a debt consolidation loan than what you will be currently paying on your credit card.

Fixed repayment schedule:

If you use a personal loan to pay off your debt, you will know exactly how much amount is due each month, and when your last payment will be. Remember to pay only the minimum with a high-interest credit card, and it could be only a matter of years until your debt is paid off completely. With a fixed repayment schedule, your interest rate remains the same for the length of the loan. You are guaranteed to not expect any kind of fluctuation in your monthly payment.

Boosts your credit:

While it may initially lower your credit score, a debt consolidation loan over time will improve your credit score. The reason being is, that it is much easier to make payments on time. One of the factors determining one’s credit score is their ability to make on-time payments, so paying a single bill when it’s due monthly should drastically improve your credit score. Additionally, if any of your old debt was from your credit cards and they are open, you will have a much better credit utilization ratio and a strong credit history. It is ideal to keep credit cards closed after paying the debt off entirely. Consolidating your debt can significantly improve your credit score rather than not consolidating. The payment history is crucial when calculating one’s credit score.

Bottom line

Before applying for a debt consolidation loan, one needs to review all of their current monthly minimum payments, including the expected length of time to repay the debt and expenses associated with a debt-consolidated loan. When consolidating debt, you should identify the reasons/s for what caused you to fall into debt in the first place, and address those issues. Debt consolidation helps bring out your debt sources into one simple monthly payment with a much lower interest rate. It can also help boost your credit score, and it will allow you to focus on more important things. If you would like to find out more information on how a debt consolidation loan works, try using a debt consolidation calculator or get in touch with our experts at Matrix Mortgage Global today.