How a Good Debt Consolidation Plan Can Improve your Financial position

Ever since the phenomenon of credit and debt emerged, people have been longing for a new way to consolidate their debts.  Debts are costly and can hinder the financial growth of an individual and prevent him from reaching his goals. If financial conditions are very severe, people often consider applying for bankruptcy. But that comes at the serious cost of decreasing their credit worthiness. It also has lasting effects on any type of future loans or credit applied for. The practical and next best option would be to go for debt consolidation. (Information Credit: Debt Therapy)

A debt consolidation plan refers to the process of taking out a new loan to pay off existing liabilities or consumer debts which are unsecured. In other words, multiple debts are combined into a single, cohesive piece of debt which often carries more favourable pay off terms than usual. Under debt consolidation, the interest rate is lowered, resulting in a lower rate of monthly payments.

Instances in Which Individuals Go for a Debt Consolidation Plan

  1. When they are overburdened with multiple debts from multiple sources, a debt consolidation plan can help combine those loans into one. This helps individuals to focus on paying off a single debt with easier terms.
  2. Debt consolidation can pay off a high interest debt with a lower interest “consolidated” rate. This significantly decreases the total amount of interest payable.
  3. It facilitates shorter monthly payments to slowly chip away at the loan amount.
  4. In some cases, it is a faster and more effective way of dealing with aggressive creditors.

The Advantages

Economists and financial experts around the globe consider debt consolidation plans to be most helpful to individuals who have multiple debts to pay off. Debt consolidation plans ensure that a person gets favourable payback rates and prevents collection agencies from hounding them. In some countries, there may be a significant tax break where interest can be deducted from any unsecured debt consolidation loan. Additionally, debt consolidation can be a positive influence on a person’s credit score, provided the balance is paid back early.

How Can Debt Consolidation Protect your Credit?

Debt consolidation programs can actually protect your credit rating from going down. This is because competent debt management companies have ties with creditors and can negotiate a lower payment or interest rate. They will obtain written agreements from each one of that person’s creditors, detailing the terms and conditions, obligations, and the report to be sent to the credit bureau. This helps in preserving a person’s credit score, or in some cases, even increases it.

In conclusion, the suitability of a debt consolidation program depends on the individual’s financial goals, credit score and a budget. An individual who already has a budget and a financial plan organised, can go for a debt consolidation loan to avoid multiple loans to get the better of them. There are multiple debt management websites that can help in matching each person with the consolidation plan that suits them best. 

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