Enter the term ‘loan consolidation’ into any search engine and chances are that you’ll get a lot of contradictory information. You may see links suggesting it’s the root of all financial evil or adverts claiming it’s the wonder solution to all financial distress. However, it’s not as simple as the critics or supporters suggest.
A consolidation loan isn’t for everyone, but it may be a useful tool to take the pressure off your finances during these challenging socio-economic times. If you find yourself with a lot of financial commitments and falling behind with your repayments, consolidating all your credit can protect your assets by arranging a structured, affordable repayment plan for your outstanding credit.
What is a Consolidation Loan
Before we dive into important information around consolidating your credit, it helps to understand exactly what it is. Simply put, consolidation loan involves taking out a longer-term loan to pay off a range of your credit. For example, loans, credit cards or store cards. When done correctly, consolidating your credit can help you pay off your credit faster by paying less interest on your financial commitments, and helping you correctly manage your finances moving forward.
Keep in mind that loan consolidation is not a product for people who can’t manage their money. This is a stigma that simply isn’t true. Consolidating your credit is a financial tool. In fact, it’s an avenue that’s used by businesses and many financially savvy people who want to simplify their financial affairs. Whether to save on certain costs or free up cash as quickly as possible, consider consolidating you credit as a means of managing your financial commitments.
Advantages of Consolidation Loans
Critics argue that the only real advantage of taking out this kind of loan is that you only have one creditor to manage. However, there are other benefits to consider too:
- Consolidation loans usually have fixed interest rates so it’s easier to budget and manage your financial affairs.
- Having only one loan to repay also means you’re less likely to miss payments, something that could impact your credit rating over the long term.
- Consolidating your credit can save you money on service fees and credit life cover costs.
- Depending on how the consolidation loan is structured, it could also improve your cash flow by requiring smaller payments, over a longer period. Keep in mind that you’ll be paying interest over a longer term.
Following the Plan to Financial Freedom
If you find yourself in the fortunate situation where consolidating your credit frees up some additional cash each month, try to use the extra money to repay your loan even faster. If not, then strive to spend it wisely or put it in a savings account. You can even invest it. Use our Consolidation Loan Calculator to decide if this is an option that could secure you better financial health and freedom.