Debt consolidation combines several loans a such as credit card, medical bills, personal loans, etc into ONE loan. For instance, if you owe RM 10,000 and RM7,500 on two credit cards plus another RM80,000 medical bills, you can simplify these loans by paying all of them in one RM 97,500 loan. In doing so, it helps to reduce incorrect payments, better debt management and avoid late payments. Additionally, debt consolidation is a good way to bring down loan payment to a manageable level by practicing a longer payment term which in turn can also give you a better interest rate.
There are several types of debt consolidation such as:
- Credit Card Balance Transfer : apply for a 0% interest if you have good credit history. You can also transfer a higher interest rate credit card balance to a single card and save on monthly charges as you pay your debts. Any payments made during this period can indirectly reduce your balance with a lower interest rate. However, the cons of this might be a recurring usage when you create more debt should you continue using the same card in the same manner.
- Personal Loans : this type of debt consolidation can be used only if you borrow a large sum of amount. The benefit of this is that it has a fixed payment over a period of time; giving you time allowance to pay off your debts. You can manage your funds better. However, it might be dangerous as one might accidentally “over-borrow” which will then lead to an increase in debt without realizing it.
- Insurance : Other consolidation options are such as borrowing against a life insurance policy or retirement/ savings plan through the cash value of the policy. The pros of this is that you do not need to wait for any approval due to good credit Eva use as long as there is a value in your policy, you can borrow against it. Interest rates and payment terms are flexible as compared to other types of consolidation. However, some policies might enquire you to reduce your sum assured, hence reducing your protection that you have built over the years.
- Private Lender : with this option, you get opportunities for lower monthly payments as we,, as a simple way of paying off all your loans at one shot. Most of your previous loans are probably held by banks; once approved by private lenders, they will assist in paying off your old loaned on your behalf and place it into ONE single, new loan. Interest rates however are higher as compared to other types of debt consolidation.
Debt consolidation is a good way to gain control over your finances and is also a perfect solution to those finding it difficult to deal with a large number of payments on a monthly basis. You might interesting on other services loan like Personal loan, Housing loan and Business loan.