Debt Consolidation is the process where you pay off multiple debts by taking a new loan or a Credit card, preferably at a lower interest rate. The main idea is to find a loan with better terms, like a lower interest rate so that you do not need to struggle with several monthly payments and can free yourself of debt faster and smoother. Consolidating credit card debt becomes vital as credit card balances have a tremendously high monthly interest.
Is debt consolidation beneficial?
Most people, including Canadians in and around Edmonton and Alberta, are still doubtful about whether debt consolidation is actually helpful or whether it can affect their financial condition negatively. However, the trend in Canada indicates an increasing number of people are actually opting to consolidate their debt. Debt consolidation is an ethical and legal procedure to get yourself out of a critical debt situation. There are several pros and cons of consolidating your debt.
Debt consolidation comes with a number of advantages –
- You can avail of a mortgage loan, that is, use your assets, like your home, to secure a lower rate of interest.
- It reduces your hassle of making multiple monthly payments to just one monthly payment, which can make your way to being debt free a lot easier and smoother.
- When the interest rate is lower, you can even pay off some extra amount every month to repay your loan even faster.
- If you consolidate your credit card debt saves you from extraordinarily high interest rates charged by credit card companies.
- Applying for a new loan may initially affect your credit score negatively due to a hard inquiry, but it is temporary. In the long run, consolidating your debt actually helps you gradually improve your credit score if you consistently make payments on time.
Debt consolidation is a very efficient way to pay off your debts. That being said, there are a few disadvantages as well –
- If your credit score is low and you cannot get your new loan at a lower interest rate, then you should not go for debt consolidation. Debt consolidation is only helpful if your new loan offers a lower interest rate.
- Sometimes, debt consolidation comes with added costs like loan processing fees, balance transfer fees, closing costs, etc.
- Your monthly payments decrease but, in some situations, your total debt repayment may increase.
- When you pay off all your other debts, it can encourage you to make more expenditures again, like using your credit card more often.
The Bottom Line –
As a Canadian, you should only consolidate your debt if you have a huge amount of debt. You can restrict yourself from overspending, have a high credit score to qualify for a new loan, and have a consistent income to pay off your new debt on time. If you meet these requirements, debt consolidation is actually a good idea. Contact Credit 720 for the best Bad Credit Help in Calgary.