Before the global pandemic, Covid-19, financial experts advised to prioritize paying off their debts first. However, following the spike in jobless folks and the current inflation, now the focus has been shifted to savings.
It is more vital than ever to have your own savings account. Although professionals advise that you stash between three and six months’ expenses in your savings account, having around $1,000 saved is the best place to start.
However, it is hard to know which goals to start working on first if you have a huge debt to settle and little savings in your bank account. With the help of a trustworthy lending network, you can find better options to borrow money and settle your debts.
Fortunately, your credit score can still be in good shape, provided you make a maximum payment right on time. Plus, savings in your account can be prepared for all your financial requirements.
But credit cards have a higher interest rate out of all credit products. So if you choose to stop prioritizing paying off loan balances so you may instead pad your nest egg, you can end up paying a lot of cash in the end. One solution for this is to opt for debt consolidation through personal loans.
What Debt Consolidation Is
It refers to combining more than just one debt responsibility into new loans with favorable term structures, like tenure and low-interest rates.
Well, debt consolidation by debt collectors in Singapore offers the simplest way to deal with debts by rolling several debt accounts into just one. You may consolidate a student loan, unsecured personal loan, and credit card debts, to name a few.
How It Works
Say, for instance, you have three different cards with a debt of $3,000 each and a personal loan of $5,000. It is likely that all these debts have different interest rates, due dates, and repayment amounts. This makes it a great challenge to be on top of all those debts.
In order to ease this financial situation, you will have to consider consolidating all your debts into just one personal loan. With this, you will only have one set of recurring payments with also one interest rate.
If interest rates on your personal loan are lower compared to existing debts, this can as well help you reduce your debt in general.
Types
If you need ways to consolidate your debt, then there are a few products, which might enable you to achieve your goal.
However, for each, you will need to keep a few things in your mind before you move forward. One common type of debt consolidation is a credit card balance transfer. Most companies provide 0% so as to invite customers to consolidate their credit card debts into one. Apart from credit card balance transfer, other types of debt consolidation loans are:
- Home equity loan
- Debt consolidation loan
- Student loan consolidation
- HELOC
Risks of Consolidating Loans
Consolidation of debts may provide several financial benefits. But it may have downsides to be aware of.
For one, your credit score will take a minor hit if you take new loans. This may affect the way you qualify for other loans.
Based on the way you consolidate your debts, you may also risk to pay more cash in interest. For instance, if you take a new loan with a lower monthly payment but has a higher interest rate and a longer period for repayment, it is likely that you will pay more cash on interest.
So ensure the consolidation saves you cash and that the upfront cost doesn’t affect your capability to make payments on time.
When Consolidation of Debts Don’t Work
While there are clear advantages that come with consolidating loans to pay all credit card debts, there are circumstances where it may not be a perfect fit. These situations may include the following:
- When you don’t have too many debts
- When you have poor or fair credit
- When you’re not planning to change your spending habit
Why Debt Consolidation is a Great Idea
Whether or not consolidation of debts is a great idea solely depends on several aspects. These may include the lenders you qualify for and what you want to achieve.
Consolidation of debts might be a perfect idea if you’re looking to minimize the repayment costs and simplify repayment.
The best thing about the consolidation of debts is that you will combine them into one source. Plus, the interest can be charged at the sum of just only one debt. That means you’re going to be left with a burden of dealing with one funding organization.
In addition, you will have a chance to lower the interest rate. In the first period of making the first installment, a financial company will offers a low-interest rate much lower than a credit card’s interest rate.
However, in the end, interest rates for consolidating debts might not be compared to credit card’s interest rates. If you already have debts from both non-bank and banks, then you’ll get a chance to lower interest rates.
How Can You Consolidate Your Debts?
Well, there are two main ways of consolidating your debts. Both of these ways concentrate debt payments into just one month’s bill.
One way is to get 0% balance-transfer credit cards. For this, you’ll have to transfer your debts to this card, then make a full payment. You’re more likely to get excellent or good credit to qualify.
Another way is to get fixed-rate debt consolidation loans. For this, you’ll need to use cash from your loan so as to pay off all debts, then afterward repay your loan in small installments. You may qualify for a loan when you have fair or bad credit. Though borrowers with a high score are more likely to qualify for a low-interest rate.
Two more ways of consolidating debts include taking 401(k) loans and equity loans. But these options come with some risks to your retirement or home. All in all, the right option for you depends on your profile and credit score.
Concluding Remarks!
The quickest way to clear your debts and stay out of them is to have a great plan. Of course, it’s not simple, but it will be much easier when you have a solid debt consolidation plan.
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