Millions of people in Canada (about 3 million at last count) and around the world are in debt, many of them seriously so. While there are several options for getting out of debt, one of the most popular options is debt consolidation. The experts at York Credit Services explain why this is often the preferred method for solving personal financial issues.
You Can Save Money
Saving money is the number one benefit of debt consolidation. When you’re paying multiple payments to multiple creditors, you’re spending more than necessary every month. Not only are you probably paying a higher percentage rate on the separate debts, but you’re also likely paying only the minimum on all your debts.
With debt consolidation, you combined your multiple debts into one lower-interest loan. This means you will have a lower monthly payment than if you were to add all your current monthly debt payments together. As a result, you have more money left over each month. Moreover, the lower interest rate and often shorter repayment period means you’ll also pay less over the term of the loan as well.
You Simplify Your Budget
When you only have one payment to make on your debt each month rather than several, you are in less danger of missing a payment, which can have dire consequences in terms of late payments and penalties. Plus, many credit cards charge one interest rate as long as you make on-time payments, but as soon as you miss a payment or are late on a payment, that interest rate shoots way up.
With just one monthly debt payment, you can stay on top of your financial obligations and pay your bills on time. Soon, your credit rating will improve along with all the on-time payments and you’ll be in a better place financially for some of the things you want to do, like buy a house or new car.
You Can Pay Off Your Debt Faster by Debt Consolidation
One of the most attractive features of a debt consolidation loan is that it has a fixed term with fixed payments. It isn’t a revolving credit line, so you can’t keep adding to that debt and you’ll know exactly when it will be entirely paid off. With a credit card, you can keep charging purchases until you reach your credit line and there’s no deadline for paying the balance off. You simply make monthly payments until the balance reaches zero, which can take a long time.
Additionally, you’ll have a set payment for your debt consolidation loan for the entire term. It won’t go up because you won’t be adding more debt and it won’t go down when your balance goes down, so your full payment will be applied until the loan is paid off, putting more toward the principal amount each month and less toward interest.
Conclusion of Debt Consolidation
While debt consolidation might not be the best option for everyone, it is certainly a great choice for many people who want to get a handle on their finances. At the very least, it will give you some breathing room as you work to dig yourself out of your financial hole.
