Many people who have experienced overextending themselves due to too many financial obligations understand the unending debt cycle that makes you pay way more than was initially borrowed. Whether you have several credit cards in addition to a home mortgage and a car loan, being saddled with debt cannot only have a negative effect on your credit score but emotionally, it keeps you from experiencing the joys that go along with being debt free. If not handled appropriately, these debts can snowball into delinquencies, charge-offs, and even a foreclosure.
However, those juggling multiple obligations can consolidate their loans into one manageable payment. Essentially, a consolidation loan allows consumers to borrow a large sum of money to pay off existing debt. In essence, the consolidation loan allows for the consumer to simplify their finances by making a single payment every month as opposed to several. Today, financing companies such as Latitude provide debt consolidation finance consumers having trouble making their payments.
To learn how consolidation loans can simplify your financial life, continue reading below.
Consolidation loans benefit consumers in the short-term because it allows consumers to pay one monthly payment, which is typically lower than the combined payments made on multiple obligations. In turn, consumers can take any extra money that is not used to save or pay on other debts. This also creates a situation where the consumer can more comfortably and realistically budget.
In the long-term, the consumer benefits because they save money in interest over time. A person with multiple debts pays out in a month extra money on interest that has been compounded, which can be very expensive. Alternatively, by consolidating a loan, the consumer is paying on one debt with one interest rate. The consumer ends up saving money over the life of the loan because he/she is not paying an excessive amount in interest.
Consolidation loans can save your credit score for a few reasons. Every late payment or missed payment is reported to the three credit bureaus. If you are late, you get a derogatory 30-, 60-, 90-day late mark on your report. If you do not pay at all, some of the comments on your report can be “late payer,” “delinquent,” or they can be reported as charge-offs. With home loans, you risk going into pre-foreclosure and then foreclosure. These negative marks on your credit report affect you in a number of ways.
For one, they really affect your credit score, and this rating is significant for a number of reasons. In the present, if your credit rating (which measures risk) is in the tank, then it decreases your chances of being approved for other loans. In fact, financing companies usually allow you to borrow but through some secured methods such as a savings account that equals the credit limit or some other type of collateral (house, car, business). Furthermore, being overextended can also reduce the chances being approved for more important loans (home).
A consolidation loan does a couple things for a person’s credit report. Because every obligation that is listed on your credit report affects your rating, the consolidation loan streamlines the number of obligations listed on your credit report. While it might not remove the negative remarks on your credit report, a consolidation loan can repair some of the damage to it.
Simplify Your Financial Life
When dealing with debt that has ballooned out of control, debt consolidation is a realistic solution to reducing your monthly payment and reducing the amount you pay in interest over the life of the loan. More significantly, it can help repair some of the damage associated with paying on multiple obligations reported on credit reports. Ultimately, though, consolidation loans can alleviate some of the stress associated with being in financial purgatory.