You have taken multiple loans from different creditors, and now, keeping up with the payments is proving to be a hectic task. Debt consolidation saves the damsel in distress, who currently happens to be you. However, this will depend on the type of debt you have.
Debt is essentially divided into two categories–secured and unsecured debt. Secured debt means placing something as collateral for the money you are asking for. For example, if you need $15,000 and own something of equivalent price or higher, you will place your item–say a car- in exchange for the money you need.
On the other hand, you are given unsecured debt with good faith that you shall pay, as creditors can take nothing away from you. If you fail to pay the debt, your creditor’s only option is to sue you through a civil court. Fortunately, you can consolidate any debt that doesn’t have collateral. Here are the types of debt under this category.
1. Credit Card Debt
The most guarded secret about credit card debt is paying your monthly credit balance on time and in full. Doing this prevents you from paying interest while improving your credit score. However, if you have difficulty meeting the payment deadline or have multiple credit card debts, consider consolidating them.
The average credit card interest rate has reached almost 21% because of historical interest rate hikes and high inflation. Now, more than ever, you should consolidate your debts using a personal loan from platforms like Symple Lending to save your credit score.
Experts at Symple Lending have noted that interest rates on credit cards have reached a record high of 23.9%. Look for a debt consolidation loan with the lowest interest rate than your credit card debt to help you save a chunk of your money.
2. Student Loans
Investing in education will lessen the challenges you will face in life. The more knowledge you have, the more doors of opportunity will be available. Unfortunately, learning doesn’t come cheap, with the average cost of college per year being $36 436, including daily living expenses, supplies, and books.
However, student loan consolidation isn’t for everyone. If wrongly misused, it can cause more harm than good. You can consolidate private and federal loans, but with federal loans, consolidate them through the Department of Education.
If you consolidate your federal loans with a private creditor, you may lose the benefits and protections, like access to forgiveness programs and income-driven repayment plans.
3. Medical Bills
Micheal Moor said, “Medical bills are the No.1 cause of bankruptcies.” Eighty million Americans or more face overwhelming medical debt, with bankruptcy as the only life-saving solution. However, they fail to take it due to a sense of pride or other personal reasons.
If there are medical bills you have been unable to develop a favorable payment plan with your medical provider, consolidating the debt may be a wise option. You can choose between a 0% interest credit card or a personal loan, which will have you pay interest on it.
Consolidating medical bills saves you from getting negative remarks on your account resulting from creditors sending your account to collectors.
Bottom Line
Debt consolidation makes your loan repayment process more manageable. Taking this route can help improve your credit score and overall financial health.
But, before taking out a new loan, understand the debt consolidation process, including the pros, cons, and risks involved. You should also tame your spending habits to avoid falling into a bigger mountain of debt.
