Managing multiple loans can be tricky. Perhaps, Debt Consolidation could be the way. But, it does feature shining upsides yet shocking drawbacks. Let’s learn more about the benefits and risks of consolidating debt with a personal loan. It would be short and simple.
Among the benefits, it offers lower monthly payments, one-time pay, fixed interest rates, etc.
Meanwhile, it could increase your overall payment, interest rates, and others. You must get familiar with both sides to take advantage of it.
What is Debt Consolidation?
With debt consolidation, you get to gather up a small payment of your load to a single-large payment in a month. It’s a process where you don’t have to manage different loan payments one after another. Instead, you get to pay them off with a single hustle-free payment.
Whether you should consolidate your debt or stay as it is, depends on your situation. Tools like loanfolk are handy when it comes to making decisions on loans. Most of all, the process has huge benefits and some downsides. You must be aware of them.
The Benefits of Debt Consolidation
Let’s look at the shining benefits of debt consolidation. Though, you might find other benefits as well. But these are the key ones. Let’s have a look.
1. Only Pay Once
Instead of paying different loans multiple times, you get to pay once. It could be in a week or month. The timeframe could be flexible. As you pay only once in a specific time frame, your load payment becomes much easier. You can remember some of the payment schedules.
Plus, paying almost every loan in a single push makes it easier. It’s simple and hustle free. No, you are calculating the payment and remembering the payment date separately. Hence, it frees up your time and lets you do other tasks simultaneously.
2. Makes Monthly Payment Lesser
Among all other benefits, you can lower the monthly payment. You pay less monthly as you expand the total time frame to repay the loan. Meanwhile, you may have to pay a little extra as time passes. But, your monthly requirement lowers.
As the total monthly loan payment drops down, you get to spend the rest of the money on other things. It’s so convenient. Plus, you get to lower the stress on the load payment as it gets a lot lower. Hence, making your loan payment easier to manage.
3. Fixed Rates
Consolidating your loans can offer you fixed return rates. Simply put, you get to fix the interest rates on your loans. Which fixes the load payment to a specific number you can count on. You know the exact amount, so you are more focused on repaying the debt.
But simultaneously, be prepared to pay within the fixed timeframe. As you fix the interest rate, you must pay within your set time frame. Not paying within the time frame may cause your overall credit score issues.
The Risks of Debt Consolidation
Along with benefits, debt consolidation also has some risks. You must know the risks to prepare yourself better. Let’s look through them right now.
1. More Costly In Long Run
Expanding your loan payment timeframe will result in more overall payments. You may need to pay more than usual in the long run. Even though you lower the monthly payments, the total amount gets higher. Hence, costing you more money than usual.
This is why; if you are not interested in paying more, you should stay in the process. But, sometimes, you may get desperate to lower the payment each month. Plus, if you are willing to pay more overall, give it. It would be a great option for you.
2. Could Damage Credit Score
As you are committed to a single payment option, it could damage your credit score. When you are in the game of debt consolidation, you must pay within the given time frame. Hence, when you cannot repay the loan within the time, it directly hurts your credit score.
Hence, you should beware of your credit score. You must pay within the timeframe to save up your credit score. Meanwhile, hurting your credit score can mean you may get issues getting future loans. Even though you could do a lot of things with a lower credit score, having a better one is recommended.
3. May Rise Your Interest Rates
In case you don’t have a healthy credit score, finding out loans with competitive interest rates is tricky. Oftentimes, you may be stuck with loans that have higher interest rates than your current ones. Therefore, you should check your credit score first.
Even if your credit score is not good enough, try finding out loan packages with lesser interest rates. If you don’t find one, try out other options.
At the same time, when you have a better score, finding out debt consolidation with lesser interest rates becomes easier.
Key Notes Before Applying Consolidating Debt With A Personal Loan
Consolidating your loans can be a messy thing and you need to consider some important points beforehand. Doing so will help you avoid the risks and take advantage of the benefits. Below are some of the important tips to consider.
- Check Out Your Credits: Don’t go through the process without checking your current credit score. Check them out and list whether it’s good, bad, or worse. Make decisions accordingly.
- Go For Different Options: Always go through multiple options before sticking to one. Look for loan schemes that offer lower interest rates depending on your credit score.
- Take Time To Recheck: You must go through all the terms and conditions of a loan. More so, check out the time frame of the payment.
That’s all on the benefits and risks of consolidating debt with a personal loan. Most of all, make sure you know both sides of it. Leverage the benefits and stay away from the downside of it.
Most of all, don’t rush off while making the decision. Try the best deal with a lower interest rate and flexible time frame. It would be rather easier for you.
Here are some questions and their answers.
Which Is Better Personal Loan Or Debt Consolidation?
Debt consolidation lets you find loans with lesser interest rates. On the other hand, personal loans often feature higher interest rates. Hence, consolidation is better if you want to lower the monthly payments.
Is Debt Consolidation Bad For Credit?
It could be bad for credit scores if you can’t repay it on time. Hence, always make sure you are comfortable in the given time frame.
Is It Smart To Get A Personal Loan To Consolidate Debt?
Consolidating debt is a smart move to merge all your load payments into one. It helps you manage multiple payments at once and save time.