There are endless reasons why individuals get into debt traps. Financing lavish holidays or spending far more than we earn each month are common culprits, while others fall upon hard times due to job loss or rising housing costs that there’s no other choice but to add on more debts. Regardless of the cause, managing multiple debt repayment obligations from a number of varied sources can be a challenge, even when income is sufficient and no major financial surprises are disrupting your plans. The majority of us carry some level of credit card debt and only pay down the minimum payment each and every month. This causes high interest to compound on the outstanding balance, making it nearly impossible to break out of the debt repayment cycle. However, for most individuals, debt consolidation may be a viable option in reducing the stress related to debt repayment obligations.
What is Debt Consolidation?
When individuals have multiple credit repayments each month, keeping track of payment amounts, due dates and accruing interest can be a challenge. Debt consolidation offers a solution to confusing, overwhelming payment schedules and may even reduce high interest rate through reducing multiple payments down to one simple monthly obligation. You can think of debt consolidation as a refinance of debt – debt consolidation experts add up all outstanding balances on credit cards or personal loans and offer a single loan that is then used to pay down each debt. Once each of those credit cards or loans are paid off, the multiple payments are reduced down to one for the new debt consolidation loan making budgeting and repayment each month much less stressful.
In addition to reducing the number of payments each month, debt consolidation can also provide relief from the suffocating interest rates that credit card and personal loan providers charge. On average, credit cards carry an interest rate of 18% that compounds each month if the full balance is not repaid. With debt consolidation, interest rates are much more manageable and can help save borrowers hundreds to thousands in the long-run. When debt repayment becomes less expensive, it is much easier to see the light at the end of the repayment tunnel. For those struggling to keep up with numerous high interest rate debts, debt consolidation is a smart way to escape the vicious debt cycle.