When to Sign Up for Debt Consolidation

Debt consolidation, by definition, is a process of combining numerous loans into one loan with the aim of either getting a lower interest rate across all loans, or ease in paying different loans. This may work well in most instances, but there are also several cases where debt consolidation is not ideal, or disadvantageous on the part of the debtor.

This leads us to the question on when to get a debt consolidation that works. It is important to note that there are several factors that you need to consider first before consolidating all your loans into one.

Debt Consolidation Is Best …

1…. When juggling several debts has become a burden to you

It is understandable that paying different kinds of loans can be quite taxing. Sometimes, this may lead you to think that you are broke and in serious financial difficulties because you have many outstanding loans to pay.

Paying only one loan seems easier on your part compared to managing different kinds of loans with varying due dates. Therefore, if your main concern is total convenience in payment of loans, then a debt consolidation is just exactly what you need.

2….When the current interest rates you are paying for are exorbitant

A debt consolidation is also a good option if you are paying various unsecured loans with high interest rates. Excellent examples are credit card bills with normally exorbitant rates. If you can just convert these loans into a secured loan with low interest rate, then you can just imagine the big savings that you will get because of the lower rate that you will be enjoying.

Keep in mind that unsecured loans have higher rates compared to secured loans. This is due to the fact that the lending firms are more secured in getting back their investments when giving out secured loans compared to unsecured loans. Should you fail to meet your obligation, they have the collateral, which in most cases is a house and lot, to foreclose in order to recover the amount they released to you.

Debt consolidation is ideal for paying off various credit card outstanding balances and reset them to zero. This will not only make payment easier and convenient on your part, but this option can also save you a lot of money in terms of lower interest rate.

3. …When there is a loan with better terms

Besides interest rates, you can also consider other terms of the loan. If you can get a debt consolidation loan with a more affordable monthly payment and a payment scheme that can reasonably allow you to pay off all your debts over time, then go for it.

Debt Consolidation in a Bull Market

There are instances when a consolidated loan can make you end up paying for higher interest rates compared to the interest rates you are enjoying today. This happens when the financial market is going uptrend like in a bull market, causing the interest rates to go down over time. If you consolidate your debts while the rates are descending, then the new fixed rate you can negotiate could be higher than what you were paying your creditors. In this case, it is best to go for consolidated loans with flexible interest rates so that you can also enjoy lower rates if the economy is performing better.

Debt Consolidation in a Bear Market

In a bear market where interest rates are continuously rising, a debt consolidation with fixed interest rate can save you from paying rising interest amount, especially if many of your outstanding loans have flexible rates. You will more likely to end up paying bigger amount in terms of rising interests due to the bad economy that results to interest rates to sky-rocket to unprecedented levels if you stick with your current loans.

It is, therefore, important to consider several essential factors before opting for a debt consolidation to ensure that such move is not only less stressful for you, but also aids you in effectively managing your finances that will eventually pay off all your outstanding loans today.