Is a debt consolidation loan the best choice for you?

Weighing the pros and cons of a debt consolidation loan

Nobody likes being in debt or accumulating debt over a period. However, people often find themselves in a situation where their finances have gone out of control, and they have a mountain of debt that they must pay off. These situations are getting increasingly common, and it is always better to consider your options when you have a financial crisis. One of the best options available to people with debt is choosing debt consolidation to get out of debt.

It is essentially a personal loan that individuals can use for paying off high-interest debts, such as credit card debts. When you consolidate debt, you can pay off your credit card balances in full and have a simplified repayment plan. It could help you save you time and money, depending on the loan’s terms and how much debt you have. However, you must consider your financial goals and situation before deciding if a debt consolidation loan is the best choice for you. Here’s what you need to know about it.

When should you consider a debt consolidation loan?

Personal loans can be acquired for any reason and anything, but if you’re using them for debt consolidation, here are the instances where it may work for you:

·      You have an excellent credit score

People can acquire personal loans with any credit score, but if you want lower interest rates and favourable terms, Harris and Partners advise that you should have an excellent credit score, which should be above 670.

·      Your debt is high-interest

The average interest rate for personal loans is 9.41%, but the average interest rate for credit card debt is 16%. That is a significant difference, and people who can qualify for lower rates than what they’re paying already should consider debt consolidation loans to save money in the long run.

·      You have a plan for repayment

One of the worst things about credit card debt is that it is constantly revolving, which means you borrow and pay the funds on an ongoing basis, but there isn’t a repayment plan. If you’re using your credit card and only paying the minimum every month, you could find yourself paying off your debt forever. However, personal loans have a repayment plan, which makes them an excellent option if you can stick to it because it helps you get out of debt quickly.

When shouldn’t you consider a debt consolidation loan?

Even though you will benefit from clear benefits if you get a debt consolidation loan, there are instances where it may not be the best option for paying off your credit card debt. These include:

·      You haven’t changed your spending problems

A debt consolidation loan is beneficial because it means you can use the credit available on your credit card. However, once you have transferred the debt and then continue racking debt on the card you have paid off recently, your financial situation could worsen. Therefore, you must address your spending issues before you acquire a debt consolidation loan.

·      You have poor or fair credit

Even people with bad credit can get approved for personal loans, but they will pay higher interest rates. That will increase their costs and sometimes make the monthly payments hard to pay off, which would defeat the purpose of getting a loan in the first place.

·      You only have a small debt amount

If you think you can quickly pay off your existing credit card debt in the next six months to a year, then the savings you would gain from a debt consolidation loan won’t be beneficial for you. You don’t need to take out a personal loan when you can afford your monthly credit card payments easily.

Other articles from mtltimes.catotimes.caotttimes.ca

wedding package

How Julie Scott redefined the wedding elopement – Helicopter wedding package

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on email
Email
Is it possible to get an A for a 5-paragraph essay assignment in 1 hour? We can safely say yes, a student can get an A+ mark if he turns to EduJungles


How to transfer money

How to transfer money from one Bank to another

Advancements in technology have made it easier for people to move money from one payment platform to another. The increased penetration of the internet has made online money transfer a favourite option for those who don’t like handling cash. Many people have bank accounts in different financial and investment institutions. It could be a savings

Psychic reading

Here are four pointers to receiving legitimate psychic reading

Psychic reading refers to special sessions where a person with psychic gifts helps a client focus on what their future life will be like while dealing with current problems. It is essential to be patient in your search and hire a person with a gift rather than the first fraud with a website that pops

Montreal’s drinking water quality

How is Montreal’s drinking water quality?

As a historic city, Montreal is home to some of the country’s most picturesque streets and urban architecture. But all that history suggests there may be aging infrastructure behind those pretty facades. So how well does the city’s drinking water compare to other parts of Canada, in other words, how is Montreal’s drinking water quality?

Balarama Holness

Balarama Holness running for Montreal Mayor

For many, Balarama Holness will always be the former Canadian football safety who won the Grey Cup Championship with the Montreal Alouettes in 2010 despite the fact that a  series of injuries cut short his football career. A few years ago, Montrealers got to take another look at the local star athlete when Holness represented Projet Montréal in the 2017

I'M YOUR MAN

I’M YOUR MAN: Love and robotics

I’M YOUR MAN – This film, directed by Maria Schrader, is Germany’s entry in the Foreign Language section of the Oscars for 2022 (its original German title is “Ich bin dein Mensch”). It is a comedy that touches on some very relevant issues in these highly technological times. Alma (Maren Eggert) is an accomplished researcher

James Bond movies

Life lessons James Bond movies have taught us

So many generations have grown up with James Bond movies by now. The suave British super spy has been in the centre of cinematic attention for over fifty years. The action-packed films aren’t all about the nerve-twisting chases and way more than fifty shades of cool, though. As a character, James Bond has a certain

Mtltimes Subscription

The latest on what’s moving Montreal and the world – delivered straight to your inbox