Debt consolidation loans are designed for people who want to immediately repay existing debts.
Five benefits of debt consolidation loans are:
- a single monthly payment
- elimination of late fees and additional interest charges
- no more collection notices
- a lower interest rate
- improved credit
If debt has become a problem and the budget will not accommodate immediate repayment, a debt consolidation loan may be the best option.
When a debt consolidation loan is used, all of the current debts are immediately repaid using the loan proceeds. The debtor is left with a single monthly payment representing the loan repayment. The loan is structured to be repaid within a timeframe that is affordable to the debtor.
Though it usually takes longer to become debt-free, the loan does not have the same negative effects as late and past-due account balances.
A debt consolidation loan is one of the best ways to stop accruing interest charges and late fees on existing debts. With those balances repaid, the individual is not threatened by additional interest charges and late fees. This is a welcome change for anyone who previously watched account balances grow each month due to these extraneous charges.
As long as the affordable loan repayment is made on time each month, the individual will not have any worries.
Since the loan is used to repay existing debts, those lenders will be satisfied. Collectors will stop calling and sending letters because there will not be any outstanding balances. The loan holder must be careful not to skip or make late loan payments because this could trigger collection notifications regarding the loan.
People with debt consolidation loans should also monitor their spending to ensure that they do not end up with new debts not covered by the loan.
The interest rate on a debt consolidation loan is usually lower than the rate carried by unsecured debts like credit card and cash advance accounts. By lowering their interest rate, debtors save themselves money. A larger amount of each loan repayment will be applied to the principal portion of the debt.
This results in quicker repayment of the loan. Money saved on interest payments can be applied toward the principal portion of the loan or put into a savings account.
Delinquent, charged-off, and defaulted accounts negatively affect the credit score. When these balances are repaid in full, the credit score begins improving. By making their loan repayments on time, borrowers give their credit score another boost.
Problem account statuses will eventually drop off the credit report and the individual will begin with a clean slate once the consolidation loan is repaid.
After reviewing these five benefits of debt consolidation loans, many people decide to use this debt management tool. They shop for a loan with a low interest rate and a term that makes monthly payments affordable.
When they repay existing debts with the loan proceeds, they feel a sense of relief and can focus on improving their credit score even more by making each loan payment on time, eventually becoming debt-free.
