One of the smartest approaches to resolving a debt problem, consolidation is like hitting the reset button on a video game when you see things are about to go badly for you. However, hitting reset and playing exactly the same way will soon find you needing to press that button again.
Before you can realize the key benefits of a consolidation debt relief program, you have to figure out why you need it in the first place. This will give you the ability to institute the changes you’ll need to make to avoid a repeat of the problem.
What is a Debt Consolidation Relief Program?
Essentially, debt relief is the process of combining as many of your eligible outstanding financial obligations as possible into one loan, which can be paid off at a lower rate of interest. Ideally, the consolidation will also net a lower monthly payment and a shorter repayment period.
And yes, it is possible to gain all three of these benefits — under the right circumstances.
How is this possible?
Let’s take a look.
Lower Interest Rates
A “good” credit rating or better is required to achieve the absolute best results of a consolidation program. This is because the vast majority of the financial savings you’ll see will come from getting a lower overall interest rate than the aggregate of what you’re currently paying.
Interest rates and credit scores go hand in hand. The better your credit, the less you’ll be required to pay to borrow. If you can roll three credit card balances with an average interest rate of 15 percent into a personal loan at seven percent, it’s pretty easy to see how you’ll come out ahead.
Improved Credit Scores
Combining multiple credit card balances into one debt instrument can lower your credit utilization ratio. This metric is determined by comparing the amount you owe to the amount of credit available to you. When you move multiple debts into one place, the “unused” available credit of the vacated debts will make your utilization rate look more favorable. This, in turn, can elevate your credit score.
Shorter Repayment Periods
Credit card debt can have notoriously long repayment periods — especially if you’re in the habit of making minimum payments on your accounts. While the exact amount of time will vary according to the amount you owe, it’s common for a credit card account to take as many as 20 years to pay off when chipping it away a little bit at a time. Meanwhile, a consolidation debt relief program by Freedom Debt Relief can be resolved in five years or even less.
Going from five credit card bills to one consolidation loan payment means less time spent paying bills, less time spent worrying about paying bills and less concern over whether or not you’ll be able to pay bills at all. You’ll also gain a more vivid picture of your financial future because the management of your income and expenses will be more predictable.
You Must be Careful Though
As we mentioned above, it’s critical to recognize the source(s) of the problem and make the necessary changes before doing a consolidation. Being honest with yourself about your spending habits is of paramount importance when it comes to deriving the key benefits of a consolidation debt relief program. You must understand how things got out of hand — and take the steps to prevent a recurrence. A stack of credit cards with zero balances can be extremely enticing if you’re still spending money you don’t have. You could well find yourself right back in the same situation, this time lacking a reset button to press.