Getting your finances in order is always a wise choice. However, when the holidays are approaching, you may feel overwhelmed with the upcoming costs, which makes the need to arrange your finances a little more acute. If you have several different loans and find it difficult to keep track and up to date with all the separate repayments, then it is definitely worth your while consolidating your loans into one manageable payment. To do this, you can take out a personal loan for high-interests debts, and in this case, the loan is known as a debt consolidation loan.
What is a Debt Consolidation Loan?
There is no special loan known as a debt consolidation loan. It is simply a personal loan that is being used to reorganize other debts. Although a lender may advise you of the benefits of such as loan, it is no individual category for this specific purpose. A debt consolidation loan though can be used to pay off one or more other debts such as personal loan debt, credit card debt, store card debt, car loan, and an overdraft, etc. Consolidation just means that you are creating a strategy of placing several monthly loan repayments in one single payment. The loan can be secured or unsecured. A secured loan means that you are putting an asset up as collateral, such as your home. Unsecured means that it is not secured against any asset. However, you will need a good credit rating to benefit from the best low-interest deals. The holidays may well be the best time to do this as it can help you manage the holiday season, reduce your stress levels, and you will not receive any payment chasing calls.
When to Get a Debt Consolidation Loan?
There are many things you should consider before getting a debt consolidation loan.
- You need to ensure that the savings you will make are not negated by charges and fees.
- You have to be able to afford the repayments.
- You are wise and learn to cut back and live within your means.
- That the amount you are paying is less than the sum total of the amounts, you were paying before.
- You will be paying less interest, and the length of time you are paying for is reduced.
What would happen if some unexpected event messes up your plans in the future, such as the interest rates increase or you lose your job. How would you manage? If you are currently struggling and often use a credit card to pay for certain household bills, etc., you may need to come to terms with the fact that you are struggling financially. You probably need more help than a consolidation loan can offer, as that will not solve all your problems. If this sounds like you, then you are far better off discussing your finances with a financial planner. They will look at your financial situation in a holistic approach and work out a real workable plan going forward.