What is Credit Consolidation?
In this article we will take a closer look at credit consolidation. Because what is it and what can you do with it? You must first of all know that in 2016 there were a total of 11,300,000 current loans. And a large proportion of them (6%) caused problems with the repayment / reimbursement. 6% therefore amounts to almost 686,000 loans. It is becoming increasingly difficult for those who have problems paying off to get out of debt. There are households that therefore took out additional loans. But most payment problems arose precisely because people had several loans. For those people, credit consolidation is often a great solution.
What is credit consolidation?
What is credit consolidation? By using consolidation, people who have borrowed money can pay off a number of loans with 1 loan. We call this loan with an expensive word also a debt consolidation loan. This makes it possible to considerably reduce your monthly payments. And that is why you save money faster. This again improves your debt ratio. A debt ratio is the difference between income and debts.
Duration must be longer
You take out this new loan with a much longer term. As a result, your monthly payments that you have to make will be many times lower. The term of a new debt consolidation loan is always longer than that of your old loans. That way you get more air and it is easier to meet your payment obligations!
If you decide to switch to consolidation, it is important to do so only if the new loan has a more favorable interest rate than your old loan (s). The new credit must be sufficient to repay your total borrowing debt that you have outstanding (incl. The borrowing interest). You can also choose to pay off your current credit quickly with the new consolidation loan. You then no longer have to pay interest over the remaining term.
Keep in mind that your costs may increase. After all, you take out a loan with a much longer term. So you pay interest over a longer period, and therefore the total costs will go up. That is why it is important to only consolidate your credit if you can take out a loan at a lower interest rate. Then you can still save costs. The big advantage of consolidation? That is that your monthly expenses will be much lower. The chance that you will again encounter problems with repayment is smaller.