What is Debt Consolidation and How Can It Help You?
NEW YORK, May 4, 2023 (Newswire.com) - iQuanti: Debt consolidation is the process of merging two or more smaller debts into one large debt. This is typically done with a debt consolidation loan or low-interest credit card. These types of loans can be found at traditional banks, credit unions, and online lenders. This article will cover some of those options and explain how debt consolidation can help you.
Merging your debts with a consolidation loan
One goal of using a debt consolidation loan to pay off other outstanding debt is lowering your total monthly payments. Ideally, you'll want to reduce the interest rate you pay on the debt. Credit card interest is high. Personal loan interest is typically lower, and you can stretch the loan out over several years. That could result in a smaller monthly financial obligation, but depending on how long it takes to repay the loan, it could cost you more when all is said and done.
Transferring debt to a low-interest credit card
You may be able to transfer high-APR credit card debt to a different credit card with a lower APR or a credit card offering an introductory or promotional zero APR balance transfer option. Those rates are typically available for those with very good or excellent credit scores, but it doesn't hurt to search for either option, even if your score is average or low. If you ask, the issuer of your current credit card might even have a lower APR option for the balance you already have.
The potential savings benefit of these options is obvious. Be careful, though. Low or zero balance transfer rates are temporary. While the APR may be in effect for six months or a year, if your balance hasn't been paid in full when the introductory or promotional period ends, the APR will go up to the higher contract rate.
Remember, even if the APR is low or 0%, there is a percentage-based or flat transaction fee you pay at the start, you still have a monthly minimum to pay, and the card may have an annual fee, too. Read the terms and conditions of these card offers very carefully.
How can debt consolidation help you?
Debt consolidation can provide a fresh start to someone struggling to make ends meet. It's not difficult to get deeply into debt with credit cards. Between online shopping and paying for everyday expenses like gas and take-out food, those balances go up quickly. Taking out a debt consolidation loan to condense them all into one monthly payment can make budgeting simpler.
Debt consolidation is not meant to cure all your financial problems. One caveat is that a change in spending behavior is required to make it work. It may be beneficial to put away credit cards after you pay them off with a consolidation loan. Using them again will simply add to your debt. Many consumers fall into this trap.
Is debt consolidation right for you?
Debt consolidation isn't the answer for everyone, but it can be a good option for you after doing further research. Weigh the pros and cons of taking out a debt consolidation loan to pay off credit cards and look into low-APR or zero-APR balance transfer credit card offers.
Debt consolidation is only part of the solution when it comes to getting out of debt. To truly get finances under control, forming better spending habits is essential. This means being mindful of spending, creating a budget, and then sticking to it.
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Source: iQuanti