While debt consolidation doesn’t erase your debts overnight, it does give you a solid path forward and can offer short-term financial relief as well.
Although some consumers worry that debt consolidation is merely a process of repackaging debt without achieving any significant gains in financial security or stability, the consolidation process can offer a number of important benefits.
Combine multiple payments into a single payment.
If you’re struggling to keep track of payments — and/or are struggling to make the minimum payments on these accounts — consolidation can help you streamline your payments, clarify your monthly obligations and create short-term financial relief.
Consolidate at a lower interest rate.
If you’re carrying debt that charges a high interest rate, such as credit card balances, debt consolidation can help you secure a more affordable repayment that greatly reduces interest paid. This reduces the total amount you’ll pay over the life of the loan, which can help you pay off your debt faster.
Improve your credit score by lowering your credit utilization ratio.
Once debt is moved out of revolving credit accounts and into a personal loan or other debt consolidation product, your revolving credit utilization will drop. This can produce a swift and significant increase in your credit score, especially if its main reason for decline has been high credit utilization.
Create a timeline for paying off your debt.
When debt starts to mount, many consumers focus on surviving month to month by paying down minimum amounts owed. This can have costly long-term consequences if you aren’t aware of your repayment schedule and how long it will take you to dig out of debt. The debt consolidation process will give you a clear repayment plan that helps you structure and schedule your debt reduction.
Reduce financial stress and avoid bankruptcy.
If you’re facing steep consequences of unpaid debts, such as high interest charges, collections actions and even potential bankruptcy, debt consolidation may be your ticket out of trouble. With a clear plan to repay your debts and rebuild your finances, you can rest easier at night while also satisfying different entities that may be taking aggressive actions to motivate your repayment.