Financial freedom for many is some far off lofty goal, especially in an era when fast, easy credit makes living so convenient. Anyone can fall victim to all-consuming debt when there is little differentiation between good debt and bad debt. While there is definitely a difference between the two, many Australians find themselves struggling to figure out when it’s a good thing to have debt.
Of the many pearls of wisdom out there on debt, the whole idea of consolidation has been presented as a way to provide relief for overwhelming, out-of-control spending. Many debt consolidation loan providers sell consumers on the benefits of financing their way out of debt. However, very few explain how to maximise the advantages of these debt consolidation loans.
Continue reading below to learn how you can get the most out of your consolidation loan and quickly remove debt from your life.
Shop For A Good Loan
When looking for a loan, compare interest rates among a number of lenders. The whole point is to lower your overall payment by avoiding paying an excessive amount of interest every month. Think about it this way: every time you pay more interest to a lender, that’s money you can’t save at the end of the month, so looking for lenders with lower rates is one way to benefit from this type of loan.
Also, when looking for a loan, compare the different fees and surcharges associated with taking out this loan. Because consolidation is like all other debts, some lenders will charge loan origination fees to open the loan and early termination fees for paying off the loan too soon. Again, any money you have to pay back outside of the principal is money that can be used for other purposes, so when debt consolidating, make sure the terms of the loan are the most advantageous to you.
Lower Total Interest
One of the best ways to use debt consolidation is to lower your overall interest rate on a monthly basis. Before consolidating debts, you might find there is little wiggle room where your finances are concerned. Each card has its own interest rate which means you’ll be paying more interest at the end of the month. Because consolidation combines all of your debts, you only pay one interest-bearing loan. After consolidating your debts, the amount you pay in interest every month will drop significantly.
Pay Off Debt Quickly
Because you’re no longer spending excesses on interest, you have extra money at the end of the month. Instead of planning that all-inclusive holiday to the Caribbean, take the extra money and pay down the debt more quickly. While many of these lenders will assess a fee for paying off the loan early, no amount of money is worth being strapped to debilitating debt. Use debt consolidation to get to financial freedom, regardless of the small fee for paying off the loan early.
Be Aware Of Traps
While burdened by overwhelming debt, it is easy to succumb to unscrupulous lenders that will tether you to an even worse financial reality than the one you’re already experiencing. However, by researching the many different types of loan programs, you will understand the difference between good practices in lending and just plain usury. Loans that appear to be a quick fix, claiming to get you into a loan without credit checks and the other necessary parts of the normal application process, should be scrutinised carefully.
Removing The Debt Cycle
In addition to saving money, the debt consolidation loan can be one of the fastest ways to resolve overwhelming debt. These loans, for the most part, give borrowers the chance to catch up on their debts by lowering the amount of interest paid out monthly. Ultimately, you are freed from debt because the amount paid on interest can then be applied to the principal on the loan.