The idea to consolidate all the outstanding loans, straight away into personal loan; is certainly the finest option for anyone who is struggling with acute debt. The thought of debt consolidation occurs in the mind of the consumer, when he starts getting phone calls and emails from various collection agencies. There is a fair chance that the credit report of the consumer will also show “default” if he doesn’t pay back his loan on time.
How does a person get into this debt trap?
Usually when a person spends his money extravagantly and ends up burning through all his credit, is bound to land in a few debts. This is when the things start taking a turn for the worse. Since he doesn’t have any money and he has already used his credit cards, store cards, gasoline cards and picked up some minor loans; he is in debt.
The individual seldom realizes is that he is going to be charged more than what he has spent. All these financial facilitators charge heavy interest on the money that they lend through their financial tools. Very few seldom read through the fine print regarding the rates of interests and the fines levied on the delay in payment; onto the due amount.
All of that capital that he has spent through credit tools has an interest over it. Now, since he had delayed the monthly payments on his credit card bills, there is an additional penalty or fine on the entire calculation. In merely, a month or two; the small amount sizes up to a huge sum. Ignorance and passion for unnecessary things drive a person to this position. At times, other circumstances are also the main contributors to the cause.
What is debt consolidation mean exactly?
This is the procedure of taking a fresh loan from one place, person or agency and paying off all the dues that a consumer may have. This way he gets to get rid of escalating fines and sub-sequential interest on that money. It is a sure fire method to repay all the small credit bills and loans, in a manageable way. Here the instalments go in an affordable sum, while the interest rates are also lower than what the consumer has been paying till now.
Here a vital fact comes into play, which states that one must evaluate all his debts by acutely determining, exactly how much he owes on every debt, including the interest that is charged on those accounts. Some debts even have an interest rate of nearly 25%. These can be taken care by the debt consolidation. This allows more room the consumer to breathe and thereby alleviate some of that stress.
Various benefits of debt consolidation
It is absolutely necessary to maintain an excellent credit score, since it would affect the financial life of an individual; dramatically. All the financial institutions utilize the credit scores to approve or reject the loan applications, of an applicant. Here a bad score may result in a higher rate of interest on the loan that has been approved for; if application gets approved. Here are the three major benefits of debt consolidation;
• Paying off the previous loans.
• Reduce the amount of various loans that were taken previously.
• Making payments on time and keeping the credit score good.
An important suggestion
It is vital to establish a different lifestyle, one that is easy on the budget, early on, so to avoid unnecessary expenditure and landing in trouble. Saving money mandatorily for the “Rainy Days” is essential because that is what will help an individual in tough financial situations. In short, one should save more; spend less.
Kc mouli is a financial consultant to big firms. Crown Money Management one of her clients, while she is also available for individual monetary consulting; as well.