Having some form of debt is part of everyone’s life. In many ways, your ability to manage debt becomes advantageous as it gives financial institutions confidence in your ability to pay. Hence, with a good credit score comes better borrowing opportunities. Managing debt is no easy task. If things get out of hand, you may end up in more hot water than you were in initially.
If you are having trouble with multiple debt payments, you may consider a debt consolidation option to manage your obligations.
What is debt consolidation?
Debt consolidation works by taking out a new mortgage to pay off existing debt. Examples of debt you can pay off through debt consolidation are credit card debt, personal mortgages, and bank overdrafts. By consolidating several debts into one lender, you only need to make one monthly payment. In a way, it is easier to keep track of your debt when you are paying only one monthly fee.
Aside from transferring several debt payments to one lender, another reason for debt consolidation is to reduce the monthly repayment burden. However, always keep in mind that even if you are only paying one monthly payment, but the amount is higher than what you’ve already settled on each debt individually, consolidating may not be a good option. Always take time to work out the numbers first before applying for debt consolidation.
Another benefit of debt consolidation is the opportunity to take advantage of lower interest rates. For example, debts with existing high rates may be consolidated into a single mortgage at a lower rate. Another point for consideration before taking out a consolidation mortgage is the associated fees and the repayment period. Be sure to calculate the total payment compared to the number of months you have to pay off the consolidation mortgage and ensure that you are not paying more than your separate debt payments.
Do debt consolidation mortgages hurt your credit?
Every debt impacts your credit score either negatively or positively. While better financial management is an excellent reason to apply for debt consolidation, always bear in mind that if you apply for one, it will leave a mark on your credit rating. Nevertheless, once you consolidate and start paying off your debt regularly, it can positively impact your credit score.
Make sure that you won’t miss out on any of your repayments so that debt consolidation does not end up further hurting your credit score. Debt consolidation does have its advantages when you are looking for an option to work several debts into one payment plan. Nevertheless, seek advice from an expert and shop around for opportunities as well as compare alternative methods of paying off your debt before making a final decision.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
