If you have a lot of debt, you know how difficult it can be to keep up with all of the payments each month. The truth is, as long as you carry a lot of debt, you will have a difficult time improving your credit score or making a large purchase such as a car or home even if you do have good credit. That’s why consolidating your debt is the first step to better credit, less stress and more options.
What Does Debt Consolidation Actually Mean?
Most likely you currently have debt in several different forms. You may have one, two or more credit cards that you carry balances on. You may also have medical bills that have piled up. Whatever the debt is, a debt consolidation loan will pay all of it off and leave you with one payment to manage each month.
In addition, the interest rates on a personal loan are less than credit card interest, so not only do you reduce your payments to one per month, the interest is going to be less, therefore, saving you money as well.
Why a Personal Loan is a Good Option
A personal loan is an unsecured loan. Once approved, you will receive a lump sum of money. One of the advantages of a personal loan is that you can do whatever you want with your money. In this case, you will use it to pay off all of your debt.
Another advantage is the lower interest rate. Credit cards, for example, can have very high interest rates such as 15 to 25 percent depending on your credit score. Personal loans, on the other hand, tend to have rates in the 6 to 7 percent range. This difference in interest rates will save you a great deal of money over the term of the loan. A good credit loan is your ideal best case scenario but a bad credit loan can often still offer better rates than credit cards.
Finally, because personal loans are unsecured, there is less paperwork and you can be approved much quicker than for a loan for a home, for example.
What to do After Debt Consolidation
Once you have made the decision to obtain a personal loan to consolidate your debts, the first thing you need to do is take the money you receive from the loan and pay them off. The next step, however, is even more important. You need to have a plan as to how you are going to deal with debt in your future.
If you don’t have a plan, then you could very well end up back in debt before you know it. You should consider working on setting aside an emergency fund if you don’t have one. That way when your car breaks down or you end up having to pay a large deductible for a medical emergency, you will have the money without having to use a credit card.
Debt consolidation is just the first step in taking control of your finances. With a little planning and thinking ahead, you can pay off your personal loan, build your savings, and improve your credit all at the same time, so when it is time to make a large purchase such as a car or home, you will have the wherewithal to do so with ease.
This information was brought to you by BetterLoanChoice
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