Are you looking to reduce your debt payments and save in interest costs? Debt consolidation program can help you lower your interest rates and cut down your monthly payments. This article helps you to explore the 8 debt consolidation benefits.Check out the following sections to know about the debt consolidation benefits in detail and find out how the community helps you:
1 Interest rate reduction
For example, if you have three credit cards at interest rates of 18%, 12% and 9%, then the average interest rate at which you've been making payments is:
(18% + 12% + 9%)/3 = 13%Say, after consolidation, the interest rates become 13%, 10% and 7% respectively. Now the average rate of interest becomes:
(13% + 10% + 7%)/3 = 10%
Now if you owe $5000 on your credit cards, then the reduced rate of interest would save you $150 per month.
2 Debt repayment plan
The plan is developed such that you won't default while in a debt consolidation or bill consolidation program. You'll be able to save dollars and organize your finances better.
3 Single monthly payment
Consolidation program requires you to make a single monthly payment towards your bills and debts. That is, you make one payment to the consolidation company every month. The company will divide and disburse the funds to all your creditors. So, you don't need to make multiple payments to individual creditors at different rates of interest. This is one of the great benefits of consolidating debt.
4 Reduction/elimination of late fees
When you default on a debt account, late charges, penalty fees, and accrued interest pile up with time. These can be reduced or even eliminated by negotiation, in a debt consolidation program.
5 Get debt free faster
If you pay a little more than the minimum on your credit cards, you'll take comparatively less time to pay off the debt. A consolidation program helps you to make payments such that you don't have to carry on with an account too long. Thus, it accelerates the period you need to get debt free. With this program, you can eliminate debt in just 4-6 years compared to an average period of 20 years or more.
6 Get rid of collection calls
One benefit of debt consolidation is that when you sign a power of attorney with the consolidation company, your creditors and collection agencies usually stop contacting you. This saves you from being harassed by creditors.
7 Improve your credit
Late payments, defaults, and charged-off accounts have a negative impact on your credit score. Once you're enrolled in a debt consolidation program and your accounts start getting paid off, your credit score improves. When all the accounts are paid in full, the consolidation company negotiates with your creditors and tries to get your accounts reported in your favor.
8 Free debt counseling
Another benefit of debt consolidation program is that most consolidation companies offer free debt counseling service to debtors willing to consolidate their bills and debts. The counseling session allows you to analyze your situation and discuss your options to get financial freedom with a debt consultant. This is to make sure that you know what's best for you.
Q: Are the advantages of debt consolidation the same irrespective of what option you opt for?
Yes, the primary advantages of debt consolidation are the same irrespective of whether you enroll in a consolidation program, take out a consolidation loan, or opt for balance transfer method. However, if you enroll in the program, you’ll get rid of collection calls and complete professional guidance to repay your outstanding dues in full.
Q: Can debt consolidation affect your credit report and score negatively?
Though apparently consolidation helps to improve your score and has a positive effect on your credit reports, yet it can affect negatively too. How? When you opt for a consolidation program and have to make a single monthly payment, that too at a lower rate of interest, you can have a tendency to spend more. This can actually offset the benefits of consolidating debt. So, opting for consolidation is not the ultimate thing. After opting for consolidation, you have to avoid charging your credit cards so that you don’t increase debt. Likewise, if you opt for balance transfer method, you repay the balance at a must lower rate. But, make sure you repay the balance within the low introductory period of the card to avoid paying much more interest on the remaining amount after the period is over. The main idea is that reduce your expenses, save more, and make the consolidated debt payments on time to improve your credit report and score.
How the Community helps you
Debt Consolidation Care community ensures that you get in touch with a reliable company to help you get out of debt. Moreover, the community provides a platform - the Debt Forum for you to get advice from members/experts and resolve your debt problems.