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When Is The Right Time For Debt Consolidation Loans?

by | Jul 29, 2022 | Tips & Tricks

Credit card debt is something that impacts millions of Americans. In fact, over 50 million people each year have to deal with borrowing money against unreasonably high-interest rates. For most people, the cost of borrowing goes unnoticed as they are able to easily make their monthly payments and will just go from there. However, there are those who are in major debt and they cannot seem to get out from under it.


One of the reasons people fall behind on their credit card payments is because of the interest. This added fee for borrowing money can kill your ability to get a head of your costs and be able to pay off the borrowed amount sooner. It’s one of the reasons why so many struggles with this type of borrowing even though it’s much smaller than car and home loans. When this type of spending gets out of control, it’s time to consider consolidating your debts.


What Is Debt Consolidation?


There’s a good chance that you’ve heard about debt consolidation in the past. It’s a popular service offered by lenders to allow for people to borrow one large sum of money to pay off all their credit cards. The idea is that instead of having to pay higher interest rates with each lender, you are borrowing from one primary lender to pay everyone off and your main loan with that lender is at a much lower interest rate.


This is an effective strategy that has allowed for people to save thousands in interest payments while still being able to pay off their loans in a reasonable amount of time. Many find this process to be much less stressful as well as it gives them a chance to finally climb out of the financial hole they are in and rebuilds their finances, including their credit score.


How Does Debt Consolidation Help You?


If you have major debt linked to your finances, it can drastically reduce your chances of borrowing money in the future. While that may not seem like a major concern now, you never know if you want to buy a new car or even a new home in the future and if so, your debt and credit scores are going to be two things that are checked very quickly. With rates climbing as quickly as they are, many feel that this is the time to get their finances in order and focus on eliminating their debt as well as rebuilding their scores.


The concept of utilizing debt consolidation can be a game changer, especially in your personal finances. Few can appreciate the feeling of paying these bills, especially faster than expected. Being able to save hundreds or thousands of dollars a month makes such a difference on your finances, especially if you are living paycheck to paycheck. The more you can save each month, the more you can save up as well.


How Loans Can Be The Answer?


While it may not seem like borrowing money is the answer to the problem that was created by borrowing more money in the first place, debt consolidation is nothing new and it’s a proven method for effectively combating major credit card debt or loans that have higher interest rates. Instead of paying these high rates and losing out on your money each month, you can consolidate your fees and put everything together so that you can pay all your bills under one loan at a much more reasonable rate. Even better, these consolidation or personal loans are usually more affordable and come with lower rates than other options.


While this strategy typically does not include auto or home financing agreements, there are other types of borrowing options that may also be consolidated under this plan. When speaking with an advisor, the ideal thing to focus on is how to sweep all your bills from borrowing money under the same account so that you pay one monthly bill until you are all caught up.


Fixing Your Finances


One of the most common mistakes people make when they plan to fix their finances is that they forget about their debt. Ideally, we want our finances in tip-top shape because it allows us to maximize our savings and also makes us look far better when applying for a loan. Yes, it’s important that you focus your energy on getting out of debt because it will help you to raise your credit score which is also extremely important if you plan on borrowing money in the future. However, there is another major reason you want to be debt free as quickly as possible.


Whenever you apply for a loan the lender will look at your income and put it against your debt. If you are making $5,000 a month but you have $2,000 a month in credit card payments, they will count that against your income which makes it extremely more difficult to borrow that money. This is why it takes time to get your finances in shape, even if you are borrowing to consolidate.


Ideally, the best way to get started is to take a serious look at your finances starting with your monthly costs. If you can find ways to set and stick to a budget, the primary goal is to free up $100 or more each month. If you can do this, you can put that newly found money towards your credit card payments or to save up so that you can pay off your card all at once. However, if this process will take you too long and cost you too much when it comes to interest, then you need to consider more aggressive strategies to minimize the number of creditors you have to deal with.





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