Key Benefits of Debt Consolidation. - How Important Is Your Finance

For those struggling with debt, their options are often extremely limited. Debt consolidation can provide an effective tool for eliminating debt without the need for bankruptcy or other extreme measures. While consolidation of debt may not be the appropriate choice for every situation, it does offer a variety of benefits to help people who are struggling with paying off their debts. As a consumer, could these benefits be helpful to you?

What Is Debt Consolidation?

Consolidation can be defined as using a single, new loan to pay off many other loans. While, at first, the concept of borrowing more money may seem counterproductive, there are reasons it makes sense. By creating a new loan that completely pays off the old debt, one may often be able to get a significantly lowered interest rate, a fixed interest rate or simply transfer a variety of regular payments into a single payment plan.

How Debt Consolidation May Be Able To Benefit You

If you are currently drowning in debt, choosing to consolidate may be your best option. With this option, you can move all of your monthly debt into a single payment plan. In most cases, the lending institution will try to extend your payments over a longer period of time, thus lowering your monthly payment. How does this benefit you? Well, for example, instead of struggling to pay five monthly bills of $200 each for two years or being forced to declare bankruptcy, you could be making one manageable monthly payment of $800 for three years. That puts an immediate $200 cash infusion back into your monthly budget while getting rid of the harassing creditor calls and headaches that come with multiple monthly debts.

Consolidation loans can also be used as a means of lowering the interest rate paid on your debt. For example, if your credit card is charging an Annual Percentage Rate (APR) of 18% or you owe money on a variable rate loan that may increase over time, you may be able to save money by using a consolidation loan. By taking out a consolidation loan with a fixed APR of 8% to pay the credit card or variable rate loan off, you could potentially save several thousand dollars each year in interest payments. If you opt to use a home equity loan to consolidate your debt, you may even be qualified for special tax deductions, thus saving even more money while making your monthly payments more manageable. (Coincidentally, the tax deduction for home equity line interest makes the home equity loan one of the most popular forms of consolidation loan in the United States.)

Consolidation loans aren?t viable options for everyone but they may be able to help you. These loans do not eliminate your debt. In fact, they increase it but the extended time period for repayment, lower interest rates and smaller monthly payments often make it possible for consumers to save money on interest charges, eliminate debt collection calls and manage their debt without the need for bankruptcy or other credit damaging options.

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This post was provided by Gene Sordino, an expert in debt consolidation. He recommends Killen Landau & Associates Ltd for their high experience in debt consolidation Toronto.

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Source: http://www.howimportantisyourfinance.com/2012/10/31/key-benefits-of-debt-consolidation/

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