Debt consolidation can be a great opportunity to begin reducing your debt quickly and easily.
For anyone with several outstanding debts, rolling them all together into one debt consolidation loan can mean you're reducing your overall interest costs which can make your total monthly payments lower and more easy to manage.
Debt consolidation loans are also calculated and charged in a different way to credit card facilities so that each payment you make is forcing the outstanding balance lower. Every time you make a payment, your balance is reduced.
This is because the payments on your consolidation loan are usually calculated using an amortization schedule. Amortization is a fancy way of saying each payment includes a portion of interest payment and a portion dedicated to reducing the balance, or principal.
If you've been struggling to reduce your balances on credit cards but don't seem to be getting anywhere, the reason for this is because credit cards are charged at interest only on the outstanding balance.
Banks and lenders charge interest daily on your credit facilities and tally the interest amounts into a monthly figure, which is what you see on your statement at the end of each month.
The minimum repayment figure is then figured using how much you need to pay to cover the interest costs and then they add a nominal figure to represent a tiny portion to reduce the balance.
Of course, this figure is never enough - which is why most people never seem to be able to reduce their debts.
Debt consolidation can really help to wipe out your debt fast if you transfer the outstanding balances of any credit you have that's charged at an interest-only rate into one amortized loan that reduces you debt with every payment you make.
Another benefit of a debt consolidation loan is that your interest rate is often greatly reduced. Most credit card carry interest charges in the range of 12% to 18% - sometimes even higher.
Consolidation loans often charges significantly less on interest charges and fees so you're paying less charges overall on your outstanding debts. This is good news because it means your money is actually going to repaying debt instead of paying interest fees.
If you have bad credit applying for a debt consolidation loan specially designed for people with low credit scores could help you to catch up any past due accounts as well as help you to reduce your debt levels more quickly.
Because the lender will have to report your account management to the credit reporting agencies, they will have to report positively that your balance is reducing and that you're making payments. Both of these could mean an increase in your overall credit score.
Posts
