Loan consolidation is an option for people who are trying to simplify their bills and reduce their monthly financial obligations. There is a great deal of information available about loan consolidation, but here is a closer look at its real benefits.
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Reduce the Number of Payments
If you have loans for such things as your car, college tuition and credit cards, it may be difficult to keep track of all of those payments every month. When you have many different debts to pay, it is possible to forget to make certain payments each month. When you consolidate your loans you make only one payment.
Lower Your Interest Debt
When you consolidate several loans into one loan you have the chance to lower your total interest debt. For instance, if you have several smaller loans, with the lowest interest rate being 12 percent, you can lower your interest debt by getting one consolidation loan with an interest rate of 9 percent or lower. You will lower the cost of your debt considerably, and you will also lower your monthly payments.
Lowering Your Service Charges
When you have several small loans you are required to pay a minimum service charge on each loan every month.
With a consolidation loan you are reducing all of those service charges to one payment every month. This will lower the amount you pay in service charges and will also help lower your monthly payments.
Improve Your Credit Score
The more sources of credit you have open the more of a negative effect they have on your credit score. When you consolidate your loans you not only reduce the number of accounts you have, but you are also deriving the benefit of paying off loans in full. This helps improve your credit score immediately.
Shorten Your Payment Terms
If you are able to get a consolidation loan that offers a lower interest rate than any of the loans you are consolidating, then you may want to use that to shorten the amount of time you need to pay your debt off. It's possible that a consolidation loan with a shorter term will amount to a similar monthly payment as all of the individual loans combined. If this is the case, and you were able to afford all of your individual payments, then you would be able to take on a consolidation payment that keeps that monthly total roughly the same but pays your debt off months or years earlier.