Dealing with multiple debt accounts can become overly tedious to you, because you will have to take care of so many things like, different interest rates, different due dates, and different monthly repayment amounts. The best way to solve your problem is by going for debt consolidation, so that you can manage all your debts with one single account.
How does it work?
You can consolidate all your debts right here on SimplePersonalLoans in 2 primary ways. Both of these ways will work towards making all your debt payments in a single monthly bill:
- Get 0% interest type of balance-transfer credit card – Try to transfer all the debts on this card, and make payments of balance completely during the promotional period.
- Get a fixed-rate debt consolidation loan – Utilize the money obtained from consolidation loan to pay all your debt, and then pay back this loan in instalments over certain set term.
Should I consolidate all my debts?
By consolidating, you can lower the loan payments, provided that you manage to get a lower rate, or if you can pay off all your debts sooner. To begin with, you ill need to make a report on your debt status from credit cards, and also from other unsecured loans. In this calculation, do not consider your mortgage, auto loans, and student loans, as you might not be able to get them under the consolidations plan.
When debt consolidation can be good idea
To benefit with consolidation strategy, you will need the following:
- Your total debt amount excluding mortgage should not be more than 40% of your total taxable income
- All your credit is eligible for low-interest loan for debt consolidation or 0% credit card
- Your cash flow always covers payments for your debt
- To prevent running into debt again you have got a plan
We are giving you a typical scenario to understand when consolidation will make sense:
Suppose you have got 4 credit cards having interest rates from 18.99% – 24.99%. let us assume you never default on your payment and hence your credit will be good.
You will qualify for unsecured loan for debt consolidation loan at the rate of 7% which is significantly lower rate of interest.
Consolidation will reveal for many people, better solution after few years. If you take your loan with 3-year term, then you know you can pay off in 3 years by assuming that you make all your payments right on time and also manage all your spending.
On the other hand, making minimum payments in case of credit cards will mean it will take months or years to get paid off, and you will end up accruing more interest as compared to the initial principal.
When debt consolidation can be bad idea
Consolidation may not be the solution for all kind of debt problems. If you have a habit of excessive spending and create debt then it cannot be the solution.
If your load of debt is too small then you can always pay off within next 6 months and in such case, you can save a negligible amount with consolidation.
If your total debts are much more than 50% of your income, then debt consolidation will not be your best option.