Learn the Facts About Debt Consolidation Loans
It’s easy to fall into debt, especially if your income can’t keep up with your expenses. Unfortunately, getting out of debt is much harder when interest rates are through the roof and monthly payments are so high you don’t have room in your budget to pay them down. If you feel stuck in a no-win situation with multiple high-interest debts demanding your attention, a debt consolidation loan could be right for you.
Debt consolidation carries risks, just like any other loan, but it also offers several attractive benefits. The team at J. Bottom & Associates Ltd. can help you weigh the pros and cons to make the best decision for your situation. We draw on over 55 years of combined experience, giving us the knowledge to provide simple, accurate, and actionable solutions to overcome your financial challenges. Call us today to learn how debt consolidation can make your finances more manageable.
What is Debt Consolidation?
The purpose of a debt consolidation loan is to combine all your debts into a single, low-interest monthly payment. You pay your lender, and they pay your creditors directly. It sounds straightforward, but each situation calls for a unique approach. Therefore, it’s essential to partner with a financial expert who can work out the details of your debt consolidation loan.
Pros of Debt Consolidation
- Enjoy a lower interest rate: The average credit card carries about 16 percent interest. A debt consolidation loan can save you hundreds or even thousands of dollars over the repayment period by charging closer to 9 percent interest, depending on your credit score and other factors.
- Extend the repayment term: You may choose to negotiate a longer timeframe for repaying your loan, reducing your monthly burden. Just know that this tactic keeps you in debt longer.
- Repay your debt faster: If you prefer, you can apply a little extra toward the loan each month, as long as it has no prepayment penalties. Plus, the lower interest rate means more of each payment goes toward the principal, paying off your debt even faster.
- Simplify your monthly payments: It’s overwhelming to pay multiple balances each month. A debt consolidation loan helps you feel more financially organized and eases the pressure of remembering to make several payments before their due dates.
Cons of Debt Consolidation
- A lower interest rate isn’t guaranteed: The interest rate you receive on any loan, including a debt consolidation loan, depends on your credit score. If your credit is less than stellar, you may still be approved, but the higher interest rate could negate the other benefits of debt consolidation.
- Your credit score could take a hit: First, lenders run a hard inquiry each time you apply for a debt consolidation loan, which temporarily lowers your credit score by several points. Then, accepting the loan offer reduces the average age of your accounts, further impacting your credit score. Finally, any missed or late payments on your debt consolidation loan will hurt your score.
- Debt consolidation alone won’t break the debt cycle: Consolidating your debt is a tool to alleviate multiple high-interest payments, but it doesn’t lower the amount you owe. Bad habits like overspending when you’re stressed will rack up credit card debt and cause more financial trouble in the future. This is why it’s essential to address any financial habits within your control by attending credit counselling sessions.
Is Debt Consolidation Right for Me?
A debt consolidation loan could be a good option if:
- You have a good credit score, which can help you qualify for more favourable terms.
- Your debts have interest rates over 10 percent.
- You’re motivated to create a repayment plan and stick to it.
However, debt consolidation may not work for you if:
- You don’t plan to change your spending habits, meaning you’re liable to rack up more debt on your newly freed-up credit cards.
- You have poor credit, which could land you with a high interest rate.
- You don’t have a lot of debt and think you can repay it on your own within the next 12 months.
- You have too much debt to qualify for a debt consolidation loan.
Consolidate Debt with Help from J. Bottom & Associates Ltd.
Whether you take out a debt consolidation loan or pursue other forms of debt relief, J. Bottom & Associates Ltd. can assist you. Our financial experts help individuals and business owners in New Westminster, North Vancouver, and Port Coquitlam get a handle on their debt. With a professional to answer your questions and offer expert advice, you’ll feel confident making decisions about your financial future. Contact us today to get started with a free consultation.