If you are struggling to make payments on multiple monthly debts, you may feel as if there is no light at the end of the tunnel. Fortunately, not all hope is lost — especially if you’re considering debt consolidation. Debt consolidation plans in Singapore can help you get out of debt, as well as make repayment easier. Debt consolidation is common in most countries and can potentially help. Let’s explore what debt consolidation entails.

Understanding Debt Consolidation

In a nutshell, debt consolidation combines all of your debts into a singular debt, with one monthly payment. For example, let’s say you have credit cards carrying different balances. Every month, you have to pay for each with different interest rates and due dates, which can be overwhelming to manage.

With debt consolation, you can take out another loan to pay all of your debts. Once you’ve paid for them all, your focus can shift to the debt consolidation loan. That’s just one monthly payment instead of several loan payments.

Debt consolidation simplifies your monthly payments by condensing all your debt into a single payment. In some cases, you can save more money on interest if your loan’s interest is lower, among other benefits.

Benefits of Debt Consolidation

• Turn multiple payments into one payment. As mentioned, debt consolidation simplifies repayment by rolling all of your debts into a single payment. Consolidating your debt might not reduce your payments magically, but you can focus on just one source of debt.
• Pay your debts faster. Most credit card balances have years to go before you can fully pay them. After all, these cards earn interest on what you owe, so lenders do not mind if you pay for five years or more. With debt consolidation, the process takes multiple factors into consideration —credit score, income and how much you owe — to create an easy payback plan. For this reason, debt consolidation loans can have shorter payment periods.
• Less stress. Consolidating your debt into one payment greatly reduces your stress levels. It also clears up the clutter of multiple payments. By taking control of your finances and staying on top of a single debt payment, you gain peace of mind.

Debt Consolidation Tools

If managing monthly payments is no longer possible, consider debt consolidation. There are different tools you can use to do so.

Personal Loans

This flexible loan option can be used for different personal payments, which includes debt consolidation. Personal loans are often unsecured, meaning they don’t have the backing of any collateral, like properties or cars.

When you use a personal loan, you can pay your debts then just have the personal loan to pay back. Another benefit of a personal loan is that they guarantee lower interest rates compared to credit cards. If you have  high-interest debt, you can save more money when you use a personal loan.

Home Equity Loan

If you are a homeowner, you gain immediate access to home equity loans for debt consolidation. A home equity loan enables you to borrow money against your home to address your debts.

Keep in mind that you may be charged extra costs and fees to access your equity. Plus, your house serves as the loan’s collateral. So if you do not pay the loan back, the lender could take your home to satisfy your debt.  

Balance Transfer Credit Cards

Another option for debt consolidation is a balance transfer, a payment method where you transfer your balance on different credit cards to a single balance transfer credit card. This debt consolidation tool has a lower interest rate (in some cases, a 0% interest rate).

Should you choose this option, be mindful of having access to another credit card. If you’re still struggling with the spending issues that resulted in your debt, having a balance transfer credit card could lead you to more debt.

Considerations Before Consolidating Your Debt

As mentioned, debt consolidation makes debt payment easier to manage. In some cases, you can even save money.

Before you consider debt consolidation, it’s important to understand any associated fees or costs with the tools listed above. It’s also important to understand the debt you’re consolidating and figure out if you’re giving up some certain rights. For example, some student loans that are government backed come with income repayment or the ability to pause in situation like COVID. Consolidating is with a private lender which won’t have those government loan benefits.

Also, read through the terms and conditions, especially the fine print. Most importantly, address the root cause of your debt problem and create a repayment plan. If you do not have a strategy, these tools could lead to you having more debt.

The Bottom Line

Just like any financial decision, a careful evaluation of debt consolidation and your current financial situation will determine if this financial tool is right for you. Should you choose to consolidate your debt, expect significant gains ahead of you. If you want to learn more, get in touch with a financial consultant or loan lender.

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