What are the benefits of consolidating your debt with a personal loan?
Debt consolidation is the concept where multiple debts are combined into a single and manageable debt. To make the point clearer, an individual can apply for a personal loan with higher loan amount and pay back his multiple existing loans. By doing this, he is consolidating his multiple loans into a single loan. This single loan is so manageable for an individual rather than paying multiple monthly installments. This method is one of the best loan management techniques. In this article, we can discuss all the benefits of consolidating your debts with a personal loan.
Simplifying your monthly payments
Consolidating your multiple debt accounts into a single debt account simplifies your monthly EMI payments. You need not worry making different payment amounts to different lender or credit cards. You just have to make one payment in a month. This makes your EMIs easy to manage and avoids the tension of missing payments.
Lowers your loan interest rate
If you are paying high interest on your credit card bills or on your loan EMIs, you can use this option of debt consolidation to reduce your loan’s interest rates. By choosing a loan scheme with comparatively lower interest rate than your existing loans, you can enjoy the benefit of paying less interest for your EMI payments for your new loan. By doing this you can save your money on interest. Usually, personal loans come with lesser interest rates than credit cards. Over a period of time, you can notice that you have saved a huge amount on your monthly interests.
Fixed interest rate
Generally, personal loans have fixed interest rates. Your credit cards come with floating or variable interest rates, where the rates fluctuate based on the prime rate. So, it is difficult to predict your monthly payments when you use a credit card for your urgent fund needs. In floating interest rate schemes, your interest rate fluctuates and changes periodically and you may end up paying increased interest year after year. You can plan your budget more effectively to repay your loan very soon.
Paying off your debt faster
Debt consolidation also helps you in paying off your debt faster and you can save money in long run by reducing the interest rates and monthly payments of your existing loans. This helps you in paying off your loan’s principal balance sooner.
Improve your credit score
Diversifying your loan accounts and having multiple debt accounts may reduce your credit score. So, consolidating your debt accounts into a single account will help you to improve your credit score. You take a personal loan and pay off your high-interest credit card bill. This reduces your credit utilization ratio and will have a positive impact on your credit score.
Avoid fees and penalties
By applying debt consolidating technique, you can also avoid the additional fees or charges and late payment penalties that come along with your credit card bills.