Debt is no one’s friend, and if you have one, you may be thinking how to get out of it quickly. One of the few options you may be considering now is debt consolidation. Well, this option will work well if you do it the right way.
In many cases, people consolidate their loans by taking out a second mortgage or home equity loan. Debt consolidation has the advantage of combining all your debt payments into one single payment, lowering the interest rates and your monthly payments.
While this option may look more manageable, consider the followings things before you decide to consolidate your loans.
Basics of debt consolidation
You can consolidate your debt using a home equity loan or a second mortgage. You’ll use the new loan to pay off your credit card balances and other loans so you’ll be left with only one payment to make each month. Be extra careful when deciding to choose this course of action because some lenders offer an unsecured debt consolidation loan whose interest rate is very high.
How much will I be saving on interest?
Consolidating your debt extend the duration of your loan and allow you to make lower payments. However, the initial interest rate may seem lower but at the end, you may end up paying more in terms of interest than you would have actually paid if you never consolidated the loan. Be keen on the numbers, find ways to pay off the debt faster.
Avoid changing unsecured debts into secured debts
When you consolidate your debt, the consolidation loan you get will change your unsecured debt to secured debt. So in the unlikely event where you’re unable to pay your home equity loan, you lose your home.
Similarly, in the unlikely event where you’re unable to pay for your credit cards only, your credit score drops, but you still retain ownership of your home. Always make sure the option protect your assets.
Debt consolidation may make you worse off than before
In reality, debt consolidation loan may not help you spend within your budget. If you fail to face the real problem on how you spend debt consolidation loan may leave you owing twice the money. Stick to your budget or else things may not work very well for you.
You may never get out of debt without addressing the reasons why you’re in debt. Therefore, sit down and prepare a budget and a debt repayment plan. Exploit all the possible alternatives, reach out to your creditors and see if you can negotiate the payments and interest rates with them. You may come up with a rewarding system to appreciate your progress.
In overall, a debt consolidation loan comes with benefits and drawbacks, and if you are not careful before getting the loan, the effects may result in more serious financial crisis. And because this was not your goal, weigh the options available ad see if taking a debt consolidation loan will really help you get out or will leave you worse off than before.
Best Credit SG Pte Ltd
Formerly known as Cing Dien Credit, we have rebranded ourselves and is now serving you as Best Credit SG Pte Ltd. We have been a licensed moneylender in Singapore since 1985! Making us one of the longest standing moneylender in Singapore. As one of the best money lender in Singapore, we have help numerous people who are in need of money since the day we started! Need cash urgently to settle some problems? Let us know. We are confident that we are able to provide you with the necessary cash. Our doors are open from Monday to Friday 11 am to 8 pm and Saturday to Sunday 12 pm to 5 pm.
Operating all these years has help us to accumulate valuable experience that has help us to understand your needs better. In addition, it has also allow us to come up with better solutions for your cash problems.
Furthermore, Best Credit is one of the money lenders open on Sundays! We are open every day except public holidays to serve your needs.
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