Repaying all your debt needs to be a top priority as you work towards achieving a healthy financial life. If you find yourself unable to catch up on what is due and the debt to pay off first as you have multiple credit lines, you could consider consolidating your loans.
By consolidating your debt you are able to combine multiple existing debts to a single one. This will give you better management and overview of your debt. In fact, the new debt offers you a lower interest compared to all your existing multiple debts. Debt consolidation can especially be useful if you intend to pay off the accumulated debts on the several credit cards you own. This is because the interests charged and late fees can add up together to quite a considerable amount which can be hard to manage.
Once you take out a debt consolidation loan, there will be fixed instalments you will be expected to pay to your moneylender for an agreed on period of time. This is a useful approach you could consider taking If you are finding it hard to manage several credit card debts.
However, this approach may not be suitable for everyone considering it would give borrowers another chance to use up their credit cards yet again. Therefore, before you jump in, read through the pros as well as the cons to confirm whether this approach of consolidating your debt consolidation will work for you.
Why You Need To Consider Taking A Personal Loan To Consolidate Your Debts
Lower Interest Rates Are Charged
Enjoying lower interest may be the main reason for taking a debt consolidation plan. Considering credit card interests can run up to about 26% per annum, it is easy for you to get a loan from a licensed moneylender that has lower interest charges than this. Being charged high interests is probably the main reason why a lot of Singaporeans end up getting trapped in debt cycles. Thus getting a loan that offers lower interest rates will greatly decrease the total costs, therefore, getting you debt-free much faster.
Makes Management Of Debt Easy
Let’s assume that you have debt on your 3 credit cards and that each one is issued by different banks. It means you will have to deal with different payment cycles thus you may run the risk of getting charged late payment fees when you miss the payment dates.
Therefore, having one debt consolidation loan means you just have a single payment deadline to adhere to for every month. This can be easy to manage when you use automatic transfer option from your account hence you avoid missing the set payment date.
Monthly Fixed Payment Terms
A Personal loan comes in monthly instalments whereby you will be expected to pay for a set time period. When you seriously want to become debt-free, monthly instalments can be motivating since you will be seeing yourself moving closer each month to finishing your debt. Also working with a fixed instalment amount each month means you are better able to manage your finances. This is because you will be apportioning out the money that has to go to the payment of debt every month.
Cons Of A Debt Consolidating Loan
It’s Possible You May Use Your Credit Cards Again
The idea behind obtaining a personal loan for debt consolidation is for you to be able to repay the outstanding credit card debts hence avoid the being charged high interest rates. Once the debt is cleared it means your cards are like new – with no debt. Therefore if you are someone who has a hard time controlling their spending habits, it can easily put you in the same situation should you give into to the temptation and start using them again.
Should this be the case for you, making use of a debt consolidation loan will only bring you more harm as you will only be drowning yourself deeper into debt? The most advisable thing for you to do in order for this approach to work is to cancel your credit cards once the debts have been cleared. This way you will not be able to add more debt through aimless credit card spending.
Higher Monthly Installments
Even though making use of a personal loan for debt consolidation of your card debts may cost you less, in the end, the monthly instalments can become higher than you are paying at this time. This is for the reason that credit card bills require you to make a minimum payment for each month.
In contrast, a personal loan involves you paying the full instalment amount each month. Therefore if you already are having a hard time paying off your credit card debts, it may be wise for you to carefully consider your being able to commit to a fixed schedule for payments.
You Might Not Save Much As You Desire
Given that your credit card bills aren’t huge and you certainly know that you can for sure pay them off and within some months, getting a personal loan to pay them off may not be a good move for you because they usually need a minimum time to repay.
In addition, you would have to pay an origination fee for your personal loan, which only adds on to your overall costs. When this occurs, you may consider using the balance transfer card with zero interest rate, instead of you applying for a new and additional loan.
Repaying all your debt needs to be a top priority and it will help you work toward achieving a healthy financial life. When you consolidate your debts, you are able to combine multiple existing debts to a single one. This will give you better management and overview of your debt.
Debt consolidation can give you many benefits which include; lower interest, you end up with a single easy to manage payment deadline, and you get monthly instalments which can be motivating since you will be seeing yourself moving closer each month to finishing your debt.