When to consider consolidating your debts

Debt consolidation sounds like a good idea for people who want to roll multiple debts into one unified payment mode system. It aims to reduce total debt, restructure it with lower interest and at the shortest applicable period of time. 

If you are thinking of consolidating your debts, there are important things to consider before deciding to push through with this payment scheme. You must completely understand that when you consolidate your debts you will be transferring your credit card debts and loans into a single lender. This financial move will also depend on your credit standing for you to qualify for lower interest rate with low payments.

When should you consolidate your debt? 

Consolidation of debts can be successful if you have the right considerations as follows:

  1. If your monthly total debt payments which include mortgage and rent is within 50 percent of your monthly gross income.
  2. If you have a good credit standing that will qualify for a zero-credit card or low interest consolidation loan. Often, a credit score of around 650 is needed. Beware of bad-credit debt consolidation lenders that exist out there. They may accept credit scores of 600 or even less but for a higher interest rate. In the end, you might end up with more debts.
  3. If your cash flow regularly covers monthly payments of your debt.
  4. If you are confident to pay off your chosen consolidation loan within 5 years.

Check out the guide on debt relief orders.

Ways to consolidate your debts

There are two primary options to consolidate your debts that will roll out into one monthly bill.

  • Balance transfer to your credit card with zero interest. This will allow you to transfer all debts to your card and pay full balance during the specified period. You will need a good credit to qualify for this.
  • Acquire a fixed rate consolidation loan for your debt. The money from this loan will be used to pay off your debts in installment within a given term. If you have a fair to bad credit standing you can qualify for this type of loan. Just note that borrowers with a higher credit score will most likely have lower interest rates.

Interested in debt consolidation? Want to know how it works? Or simply would like to know more about it? See more from this site.

There are other options to take in consolidating your debts one is to tale a home equity loan. However, a home equity loan is risky. Whatever means you would choose to have consolidate your debts, the best option will strongly depend on your credit score as well as from debt to income ratio. 

For borrowers having several high-interest loans, debt consolidation is often a good idea. Are there any cons? Yes, of course because debt consolidation loans can temporarily lower your credit score in the short term. However, you can get it your credit standing back by improving your payment history. There might also be upfront costs or fees for consolidating your debts, so make sure to verify this first with your lender.

Always remember that consolidating your debt does not guarantee to solve your financial problems. Make sure to live within your  means, so you can be free from debt.

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