Keeping personal finances up to date can be giving some headaches, especially when they arrive unforeseen. And when we have to juggle money, it is sometimes difficult to ignore a payment or deviate from the important thing. This becomes even more complex when the financial situation includes loans, credit card payments or long-term financial refunds. Fortunately, this is where debt consolidation can help you.
What is debt consolidation?
You may have heard the phrase ‘debt consolidation’ before, but you may not know exactly what it is. Well, it’s very easy: debt consolidation generally refers to the process of obtaining a loan to pay all (or a large part) of your outstanding debts. Basically, this will result in you being able to pay a series of debts – usually unsecured – at the same time, leaving you with less payments to make each month. You can also work with a provider to get a loan at a lower interest rate, which will ease the financial burden.
What are the advantages?
Debt consolidation is usually more suitable for people with multiple debts, especially if some of them have high interest rates. If you have difficulty paying off these loans or if the payments leave your account at various times during the month, then this could be causing additional stress that debt consolidation could help eliminate.
By consolidating your loans, you could also improve your score. This will allow you to get better deals on things like mortgages, and will help you when you try to get a credit card.
How should you prioritize payments?
Generally, the best option is to try to pay (in full, if possible) any debt with high interest rates. The sooner you can remove these payments from your debt, the better your situation. However, there may be other considerations, a loan that you need to repay to a family member, for example, that you think require your immediate attention. However, it is worth thinking carefully about the best use of your loan money before committing to any expense.