Did you go into debt over the holidays? You are not alone. Over a third of millennials in the country said they expected to accumulate debt as a result of their holiday spending. The debts can seem overwhelming at first, but it is possible to get around faster than you think.
If you want to manage your debts proactively, a debt consolidation loan can be a great option since it will help you pay off your debts faster and save hundreds or even thousands of dollars in interest costs.
What is a debt consolidation loan?
It is a loan that a person obtains to repay several loans or debts of lower amounts. The advantage? Debt consolidation can generally allow people to take advantage of a lower interest rate and a simplified payment schedule. A debt consolidation loan can be a line of credit, a staggered loan, or in some cases, a refinanced mortgage.
For example, suppose a person has a balance on different credit cards, as well as a personal loan and a car loan. Instead of making several payments each month at different interest rates, she can take out a debt consolidation loan to pay off all of her loans. He will then have to pay only the payments on his new consolidation loan, and this, at a possibly lower interest rate.
Now let’s find out some tips that will help you maximize your repayment efforts:
1. Choose a payment option that you can respect
A simplified payment schedule only works if it fits your priorities. Here are some tips to help you choose the right payment option:
- Are you overwhelmed by the different payment deadlines? You will therefore appreciate the monthly payment schedule since you will only have one predictable payment to make each month.
- If having regular payments keeps you on track, and you want to stay in control of your budget, choose the bi-monthly payment option. These are more predictable than paying every two weeks since you will be paying the same amount each month.
- If you want to pay off your debts faster and save money on interest charges, paying every two weeks is a better option since you will be making two more payments per year compared to biweekly payments.
And don’t forget to take advantage of automated payments if available. Set them up to occur on the day that works best for you, such as your pay day. You can also stagger your loan payments so that they don’t coincide with other major expenses, to keep a manageable balance.
2. Find a loan duration suited to your priorities
On the one hand, a longer term allows you to take advantage of more affordable payments. On the other hand, a shorter term increases the amount of each loan payment, but allows you to repay it more quickly. If your budget is tight and you don’t mind taking more time to pay off your loan, choose a longer term. If your priority is to pay off your debts faster, make sure the high payments are right for your budget.
3. Opt for a secured loan to take advantage of a lower interest rate
Take advantage of the equity in your property by securing your loan. A secured loan gives the lender more reason to believe that you will pay it back. You will benefit from lower rates. Besides such a loan often allows you to get more money.
You are not an owner? Do not worry. You don’t have to be to be able to take advantage of an unsecured loan.
4. Do your research
Do you want to know if debt consolidation is right for you? Here are some helpful resources:
- Read this article to learn how debt consolidation works.
- Find out what types of debts you can consolidate and how to apply for a debt consolidation loan.
- Are you wondering if you qualify for a debt consolidation loan? Go for a loan quote. You can even find out how much your payments would be. No obligation or impact on your credit score.
Finding the right debt consolidation loan is essential to your financial future. The next step, however, will be to assess your spending habits that have led to debt accumulation. Once your consolidation loan has been repaid, deposit an amount equivalent to your payment in a savings account at the same frequency. You will be able to use this money for short-term goals, such as holiday expenses or emergencies, and avoid further debt in the future.