4 ways a Debt consolidation loan can help you
A Debt consolidation loan is a powerful tool if you know how to use it.
Paving your way for a healthier financial future by facing your debts and simplifying your finances. Things might be made easier by a consolidation loan, but it still requires discipline. Create a budget and be strict with yourself. By using your consolidation loan as a stepping stone, you will allow yourself a better financial future. Don’t take out other credit while you’re paying off your current debt.
You can turn several loan payments into one cost-effective payment, with a debt consolidation loan. So how does debt consolidation work? Below are four ways that a debt consolidation loan can help you.
1.Combining several creditors
Each creditor has its terms, fees, and interest rates. Managing each creditor on its own when you start to fall short and struggle to make payments can get very tough, hence why a consolidation loan is so liberating as it will allow you to make a new loan to pay off all your creditors and only focus on one loan, that means one interest rate, and not dealing with multiple terms and fees.
2. Saving Money
One monthly repayment at a favourable interest rate is much more affordable than several payments with varying interest rates. This could help you to save some money and even pay off your debt faster as you have more available to pay towards it. This is the part where you have to be strong and have good self-control.
TIP: Always compare interest rates when taking out a consolidation loan.
3. Settling several debts
A consolidation loan enables you to settle several outstanding debts and only focus on one loan to pay. This makes it easy to manage and is a very effective way of improving your financial situation. Your credit score will improve when paying off several debts and you will have to resist the temptation of taking one more debt.
4. Less stress
It can be extremely stressful to have incoming calls all day long from creditors hunting you down for payment, your mental health might be at risk here.
Making a wiser decision and approaching your debt from the right angle can have really good results in terms of your well-being and mental health. Stress is ultimately the cause of most diseases.
Always make sure to carefully evaluate your situation to determine if it’s the right financial step for you, but there are significant gains through debt consolidation that could make it a worthwhile option to consider.
Bringing together your debt sources into one simple monthly payment will enable you to have a lower interest rate, it can help boost your credit score, and it will allow you to focus on other, more important things.
It is wise to consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.
Remember to consider your affordability when applying
It is a good idea to get grips with your finances before applying for a consolidation loan.
To check if you can afford the loan, credit providers take the following into account:
- Income after tax
- Necessary expenses like your bond, transport, and food.
- You will have to disclose all your other financial obligations, like standing debit orders, insurance, medical aid, etc.
- The amount which can be used to repay the loan.
These are the documents you’ll need:
- Identity document
- Latest payslip
- Latest bank statement reflects three salary deposits
- Proof of residence