Another financial scenario that is often on our minds is whether or not we should look into consolidating our loans. We certainly have a lot of debt that has quickly added up and since saving money is my number one goal and I am always looking for effective ways that we can save money could a debt consolidation loan help me to this, while paying off a good chuck of our debt?
First of all, I wanted to gather some further information about what debt consolidation actually means. Here is what I found . . .
What is debt consolidation?
When you are consolidating your debt what you are doing is taking out a new loan that combines all of your current loans into one. Consolidations loans often have a lower interest rate or even a fixed rate and if one or more of your prior loans have a high 
interest rate, the idea here is that you can save a bit less and work towards paying off some of your other debts with a bit more ease.
So, what are some of the viable reasons for considering a debt consolidation loan?
There are many reasons that one might choose this type of loan. Again, it is very much an individual decision, based on your personal financial situation and what is best for you.
Reason #1: Get a Lower Interest Rate
As mentioned above, when you consolidate your debt, you can take on a new loan that carries a lower interest rate. Your new interest rate will likely remain fixed as well and you won’t have to worry about seeing a fluctuation from one or more of your outstanding loans. The high interest rates associated with some credit cards can be very steep and if you are having trouble paying off one or more of your credit cards – consolidation may be a great benefit to you.
When you are carrying multiple loans with varying degrees of rates, this can mean you are paying a lot more and also taking a lot longer to pay them back. The cyclical nature of this arrangement can also go both ways. The longer it take to pay back the loan, as the more interest you are actually paying over time. So, why not seek out a lower interest rate to try and combat this issue.
Reason #2: Make One Payment
One of the reasons that dealing with our finances can be overwhelming and complicated is because often there are multiple payments we have to make towards a variety of different loans. Not only is this time-consuming, but it can also get confusing to remember them all, as well as the different amounts we are required to pay and when. Through loan consolidation and a combined payment – you can bring your number of payments down to one – one amount, one payment cycle to remember and even at a more affordable rate. This payment schedule can also make you less likely to accidentally miss a payment, which can derail your credit score further.
Reason #3: Decrease Your Stress
Lastly, consolidating your debt into one loan can help decrease your stress levels and improve your well-being. By making your payments more manageable and working towards lowering your loan balance, you are likely to feel a sense of relief. Improving your financial situation will go a long way to making you feel happier and healthier.
What to Consider . . .
With all of the benefits associated with debt consolidation – I also wanted to see if there were any areas of caution to be aware of. While you are taking on one loan – it is important to understand that the size of the loan is increasing. Even though the interest rate may be lower and the payment schedule less complex, it could actually appear more daunting for you, because of the sheer volume of the loan. If it ends up taking you longer to pay it off versus paying down faster (which is the general idea) – then you may end up paying more over time. Keeping the bigger picture in mind, you will want to look at your personal situation and decide if taking on a consolidation loan is the right method for you and if will be the more manageable of the two options.
Aside from this downside, there still appears to be many solid reasons for considering a debt consolidation loan and it can be an effective strategy for improving your financial situation. This information has definitely given me more insight and opened my eyes to other methods of managing our finances more efficiently.
My next plan of action is to take these reasons into consideration and with my husband decide if this is the best choice for us. This may work out to be a very beneficial option for us, particularly with the outstanding credit card balances we have been carrying and the multiple loans we have on the go, both with higher interest charges that we would like.
Overall, I think this could potentially alleviate some of the financial stress we are experiencing on a regular basis. I also plan to speak to our financial advisor or even a free debt counselling service to get their guidance and input on this subject manner. We can certainly use some help with our search for more debt-relief methods to add to our current bag of tricks.
