What do you do when you find yourself struggling with multiple debts, all of which are due at the end of the month and you find yourself forgetting to pay off others in time? Do you continue paying the high interests and associated penalties or do you look for alternatives that offer better debt management? As a smart registered massage therapist Toronto, you should seek the latter option. Even though there are different ways of going about debt, the easiest and the highly recommended option is debt consolidation.
Debt consolidation refers to a form of debt relief management which allows you to get a single loan to pay off all (or most) of the smaller loans, leaving you with a single loan payment rather than many repayments. As long as you change your spending and financial management habits, paying off one loan is considerably easier than the multiple debts.
Secured vs. Unsecured Debt Consolidation Loans
There are secured and unsecured consolidation loans. The secured loan refers to the loan taken against a car loan or a mortgage. The bad thing is that your home may be foreclosed if you are unable to repay the debt. The secured loan has a low-interest rate.
The unsecured consolidation loan on the other side is the loan based on your promise to pay back the rent. There is no property put up against the loan, and unfortunately, the loan attracts high-interest rates. An example of unsecured loan is a credit card debt.
The benefits of debt consolidation include:
- A single monthly payment
Through debt consolidation, you end up with one loan to settle the other accounts. Settling one loan monthly is easier than paying off several debts because you will not forget to pay off one debt and you won’t have to worry about multiple deadlines as you now have one debt to focus all your attention on. Instead of four or seven bills and debts, you will have a single loan/bill under your name every month.
- You will have a significant reduction in interest rates
With help from a debt consolidation company, your lending rates are negotiated so that your current debts and attract a lower interest rate. For instance, consolidation of two high-interest credit card debts will most likely leave you with a lower average interest rate than what you were paying previously. At the same time, taking a debt consolidation loan to pay up all your existing loans will leave you with a single loan which often comes at a lower interest rate.
- No effect on your credit score
Unlike debt settlement, getting into a debt consolidation program and getting a loan doesn’t affect your credit score. However, you need to be aware of the high penalties associated with missed payments, as well as high prepayment penalties associated which will be slapped your way of you pay off the loan in full before the loan matures. While the prepayment penalties apply to most debt consolidation loans, you should never make assumptions. We highly recommend that you read through the fine print or have your financial counselor analyze it before you start making any payments.
- Emotional and psychological advantages
There is nothing worse than receiving harassment letters, emails and visits from collection agencies and loan companies. While debt consolidation leaves you with one loan to settle, it is somewhat freeing because your debt consolidation company ensures that you can pay the loan before it is approved. The plan may make you less stressed.
The only problem (or advantage to others) with this is that even with a low-interest rate and a loan spread over a long time, you will still have to think about the loan for a long time. Knowing that you are in debt five or 10 years from today is not a comfortable fact to deal with.