Loan consolidation, also known as debt consolidation, is the process of combining all your debt, of all kinds, from all lenders, into a single, easier to manage loan. Whether you are on the edge of filing for bankruptcy or are simply trying to gain a better handle your finances, loan consolidation will pop up as one of the handful of smart options.
1. Your Credit Is Safe
The first good thing about loan consolidation is that it inflicts no negative impact to your credit standing, meaning that you'll still be able to apply for mortgages, credit cards, and more in the future. Loan consolidation is different from debt settlement. Loan consolidation pays off all of your debts, but debt settlement is a process of negotiating for a smaller payment, which does affect your credit scores negatively.
2. Less Hostility
With debt consolidation, you get to keep good relations with your creditors. The negotiations are not as fierce as other options, like bankruptcy and debt settlement. Moreover, the plan is structured to allow the debtor to pay the debt in full immediately because the consolidation loan covers your previous debts. Your consolidation loan is also easy to pay off in a timely manner.
3. Lower Interest Rate
The potential for a lower interest rate is another great thing about consolidating your loan. The goal of debt consolidation is to help the debtor pay the loans as quickly and as early as possible. Creditors agree to offer lower interest rates in order to ease the financial burdens, which in turn gives them a greater chance of recovering their investments in as little time as possible.
When consolidating, look for a secured loan when your goal is to save money from lower interest rates. Of course, you will need some type of asset, such as your car or your house, to be allowed to use a secured loan. The downside to consolidating with a secured loan is that you put the asset at risk of default in the event that you are unable to pay the debt.
4. Convenience
By rolling multiple small loans into one, it becomes more convenient and easier to manage since you only need to look at one bill for all of your debt. The terms of agreement (including payment dates and interest rates) are also standardized.
While debt consolidation does free you from the emotional and financial burdens temporarily, it does leave you at risk of feeling prematurely confident about the situation. Make sure you keep your guard up to avoid incurring additional debt from careless or negligent decisions on your part.
