Financial well-being is an aspiration most of us strive towards. We want to be debt-free, have sufficient savings for a rainy-day and investments that can bring us closer to our financial goals.
However, achieving that state of financial security can be hard. And sometimes, in an effort to get there, we make unfavorable choices.
To anyone seeking a solution or way out of their financial unrest, debt consolidation is a worthwhile approach to consider. However, it may impose some risks on those who are already vulnerable to monetary indiscipline.
Here we will dive deep into understanding what is debt consolidation, critique it objectively as a real-life option and a potential way forward for those with bad credit.
Quick Summary:
- Debt Consolidation does not eliminate debts, it can help streamline you on a path to financial freedom.
- Specifics of your situation will determine if debt consolidation is a good option for you.
- Debt consolidation can help manage debt with a simple repayment plan and lower interest rates.
- It’s important to consider the pros and cons of debt consolidation loans for bad credit borrowers. The Debt Fix team can help determine if this is a suitable option for you.
What is Debt Consolidation?
Investopedia describes Debt Consolidation as taking out a new loan to pay off other existing loans. Multiple loans are combined into one financial entity, with the aim of simplifying debt management. You can then pay back all the loans through a single consolidated recurring payment.
It is likely that under such an arrangement, you will receive more favorable repayment terms such as lower interest rates, frozen interest rates and/or lower monthly payments.
However, for those who have previously struggled to maintain discipline with their finances – adding another loan to the bucket might make the situation more overwhelming.
There are several pros and cons to going the debt consolidation way. We will explore some of those in this article. Ultimately, you must decide given the specifics of your situation if the pros outweigh the cons. Our expert consultants are available to assist you in making this decision, get in touch with us today.
What are the Pros of Debt Consolidation Loans?
Debt Consolidation has many benefits. When you have multiple payments to make, at different times during the month and with varying interest rates – it can get overwhelming to keep track of each one.
Debt Consolidation does not eliminate your debts. However, it can help streamline you on the path to financial freedom. While teaching you how to be responsible with your finances and address the underlying patterns that led to the accumulation of debt.
A Simple and Streamlined Repayment Plan
With debt consolidation loans, all existing debt repayments are combined into a single recurring repayment. This can be a great relief and initial source of financial ease if you have been falling behind or losing track of multiple repayments.
We will help you establish a clear and concise understanding of your financial situation, i.e. how much you owe in total, what will be the monthly repayments factoring in your earnings and current financial situation/commitments, and the duration over which you can be debt free if you stay consistent on this plan.
An organised plan such as this will likely lower the instances of missed repayments and simplify tracking your finances. For those with bad credit, this can be an opportunity to start building a history of on-time loan repayments which may eventually help improve your credit score.
You Will Know When You Can Finally Be Debt Free
The uncertainty amidst piling debts and no solution in sight can take a toll on your mental and physical health. Many times, in seeking a ‘quick fix’ or momentary relief – we may end up making decisions that ultimately turn out to be unfavorable and further complicate our situation.
Our team is well-equipped with practiced debt advisors who are committed to helping you and guiding you toward absolute financial freedom. Going down this route with consistency will bring you closer to the day you can finally be debt free – one repayment at a time.
To be debt free is the ultimate goal and to have an organised plan to get there one day will not only increase the possibility of achieving this goal but also make the journey toward it free of stress and anxiety.
Once you have established consistency in your repayments, you will also start to learn about maintaining your financial health and play all the different roles that you do in your personal/professional life with conscious intentions towards this.
Significant Reduction in Debt Maintenance Costs
If you do qualify for debt consolidation, there’s a high chance that the new loan offered to you will have lower interest rates than what you are already paying across your many loans, or the option for the interest fees to be frozen.
Some debt consolidators negotiate on your behalf with your existing creditors to reduce the overall amount that’s due, either by omitting certain fees or lowering the interest rates. This can lighten the burden of debt and bring you closer to being debt free quicker.
A reduction in the overall payment and lowered interest rates are especially beneficial for candidates with bad credit history. This makes debt repayment more manageable and maybe, even shortens your repayment timeline.
No More Calls From Debt Collectors
Calls from debt collectors can be a cause of anxiety and stress when the weight of pending loans and missed payment dates is piling over you. The impact on your mental and physical health can interfere with your ability to carry out even the most simple everyday tasks, such as going to work, looking after your health, or catching up with friends.
Once Debt Fix comes onboard to support you in your journey toward financial freedom, we will take over all communication with your existing creditors.
Which means you can finally stop worrying about their calls and unannounced visits. And spend all your time and efforts towards achieving your financial goals.
What are the Cons of Debt Consolidation?
It’s worth noting that going down this route can be challenging if you have previously experienced indiscipline with your finances or have bad credit. Adding another loan to your overflowing bucket of debt, due dates, accumulating interest and creditors can make you even more stressed if it’s not repaid consistently and as per the terms of the repayment plan.
Debt consolidation comes with potential drawbacks. This may include:
- For debt consolidation to work out for you, it is highly important to stay consistent with on-time repayments. This can sometimes be difficult to maintain for those with bad credit history and a past of mismanaging personal funds.
- If you have a bad credit score, it might be difficult for you to find a creditor who’s willing to lend you a loan for debt consolidation. When seeking a debt consolidation loan for bad credit, it’s important to consider the terms such as interest rate, fees charged, and any additional items in the agreement that may be unfavorable to your situation.
- Extending your repayment period via a debt consolidation loan also means delaying the timeline of when you can be debt free and start afresh financially. It’s important to weigh up the timeline and amount of interest you are likely to pay with and without debt consolidation to determine if this is a favorable option for your situation
With regard to your finances, you are the best judge about whether or not debt consolidation is a suitable approach to help you get on top of your finances. If you have bad credit, debt consolidation can help you buy more time and potentially get a loan with low-interest so you can organise your finances and set out on a journey toward financial liberation. In succeeding to do so, you will not only be free of all your debts but also may have the opportunity to improve your credit rating along the way.
Ultimately, debt consolidation does not eliminate your debts. It’s only helpful in making the repayment easier and more manageable. One true way of making debt consolidation work for you is to address the root cause of your financial unrest and take conscious efforts to avoid falling into the same patterns that led to debt accumulation.
How Can Debt Fix be of Service to You?
You will be in safe hands, with us at Debt Fix. We offer a range of services, including debt consolidation loans, which can help you regain control of your finances. If your credit score is low, or you’ve been rejected for loans from the banks, we may be able to help. Our focus is to create a plan that actually works for you in real terms, not just in theory.
Here is a quick snapshot of our services:
- Fast and easy credit score check
- Creating simple, user-friendly agreements and repayment plans
- Open and transparent consultations
- Debt consolidation loans for clients with over $8K in debt
With a great community track record and outstanding resources to use, there is only upside to starting your journey toward financial freedom with us. Get in touch now to schedule your free debt consultation.