Consolidating debts from multiple lenders into a single loan may seem scary, but it can result in a worthwhile financial solution for individuals dealing with multiple debts. Simply put, debt consolidation means combining your outstanding debt and loans into one convenient loan, hopefully at a lower interest rate than you currently pay. Thus, enabling you to focus on one payment rather than several, allowing for more financial breathing space and may help you pay off debt sooner.
Before you consider looking into debt consolidation or applying for alternative small business loans, there are some important tips to follow if you want to get the most out of it.
Don’t Forget That You’re Still in Debt
Debt consolidation is best used to streamline the amount of payments you have to make each month, but it’s not a magic solution that will allow you to skip paying off your credit cards. A consolidation loan is just an enormous loan that you take out to pay off all your smaller debts, so there’s still a chance you could fall back into the same financial situation you were in before.
For example, if you have a $10,000 debt load before consolidation, you’ll very likely wind up with a big loan that’s roughly the same or even larger. It’s not uncommon for consolidation loans to increase the amount of debt you have outstanding.
Determine Which Debt You Should Consolidate
When considering debt consolidation, it’s important to think about which of your debts you’re going to want to pay off first. Your credit card debts probably have a higher interest rate than your student or car loan, so it may make sense to consolidate those debts first. It’s also a good idea to take a look at your past credit card statements and see your average monthly debt payments. By paying off your debts that require smaller payments first, you can save yourself a lot of money in interest payments by paying off your debts that need smaller payments first.
Find Out About the Fees
As anyone who has ever applied for a credit card knows, there are a lot of fees that go along with signing up for a new loan. Along with the interest rate, you’ll want to be sure to check the fees associated with borrowing what you need. If any extra fees come with debt consolidation, it’s important to look into those as well before deciding what to do.
Read the Small Print
A lot of people who try out debt consolidation don’t really read the fine print, which can lead to a lot of problems. It’s imperative to read through the loan contract and know exactly what you’re getting into with the loan. After you’ve read through the contract, ask someone who has experience with debt consolidation if you're not sure about something.
For most people, debt consolidation just doesn’t make sense. If you’re trying to pay off your debt, you’re probably better off looking into a debt management program, which will allow you to pay off your debt without adding any more to what you owe. However, getting alternative small business loans for debt consolidation can work in some situations, and it’s worth looking into. Just make sure you do your homework before you sign any contracts and that you don’t sign up for something that’s more than you can handle.
Wealthy You is among the most reliable alternative finance providers in Sydney that can help you. Contact us today to find out more about our financial solutions!