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Why debt consolidation is a good personal finance strategy

Why debt consolidation is a good personal finance strategy

Debt consolidation is a financial management strategy that is becoming increasingly popular all over the US. Indeed, demand for these types of products has become so widespread that a new specialized market has sprung up to meet it. This means that anyone looking to ease their financial woes would do well to compare the best debt consolidation loans to find the optimum solution for their needs.

But why, exactly, has this type of strategy enjoyed such a purple patch in popularity? There are a number of reasons why consolidating your debts makes good financial sense. Here are a handful of the most important factors which make debt consolidation an attractive strategy for those with several outstanding credit agreements to pay off.

Reduced interest rates

If you have a number of different loans, credit cards and other financial support agreements in place, you’ll be faced with a multitude of interest rate payments on top of each one. If you have engaged the services of less reputable lenders, such as payday loan providers, you’ll likely find that their APR is through the roof. This means that you’ll end up paying back far more than the original sum you borrowed.

By consolidating all of your debts into a single loan from a single provider, you’ll only have one interest rate to contend with. More often than not, this means that the total repayable sum will be far less than if your debts are spread out and segmented.

Easier to manage

When your debts are split among several different creditors, staying up to date with the various repayments can be akin to keeping various plates spinning all at once. In extreme cases, this can negatively impact your mental and physical health by heaping undue amounts of stress upon you.

By contrast, having just a single repayment to meet makes it far easier to manage your finances. This not only takes a great weight off your shoulders, but also simplifies the process of coordinating your budget. As such, it’s much more likely that you’ll be able to handle the repayments and safeguard your health, all at the same time.

Meeting deadlines and avoiding fees

Following that line of thought, simplifying your repayment schedule means you are less likely to be late with an installment—or worse still, miss one altogether. Unfortunately, doing so can often be a costly mistake, since most lenders impose strict penalties for missed or late repayments in the form of financial charges.

By keeping the likelihood of such a slip-up occurring to a minimum, you can give yourself the best chance of avoiding those kinds of fees. This keeps the overall cost of the loan down as much as possible and ensures you get out of the red more quickly than with segmented debts.

Regardless of the amount you owe or your own personal circumstances, consolidating your debts is an excellent way to bring your finances into line and get your ducks in a row. As such, it’s an advisable strategy for anyone with multiple credit lines who is struggling to stay afloat.

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by Dirk DeBie // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.