Sometimes, unexpected expenses may arise that cause you to look for additional funds. In such a case, you can always consider getting instant cash loans to meet your current financial needs. However, oftentimes, when you take out multiple loans to address your numerous financial requirements, it can eventually become challenging to manage your repayments on top of all the monthly bills you need to take care of.
Fortunately, there are several strategies you can employ so that you are able to manage your debts more efficiently, one of them being through consolidating your loans. The term ‘debt consolidation’ refers to the process of obtaining a new loan to pay off your other existing loans. To understand more, read on as this article explains how debt consolidation works and the best practices for consolidating your loans.
How debt consolidation works
As mentioned earlier, debt consolidation is the process of combining multiple debts into a single new loan. You can do this by obtaining a new personal loan, a home equity loan, or a credit card with a high enough credit limit. Then, using the new loan, you pay off your smaller debts. Consolidation loans in Singapore are very prominent because, aside from boosting your credit score, they often come with lower interest rates than what you previously paid out monthly.
The best practices for consolidating loans
1. Understand the effect
When you consolidate your loans, you are essentially aiming to lower the interest rate you are paying on outstanding balances. While this is a good thing, the benefit may be less promising if the debt consolidation loan has a longer repayment time frame, which causes you to take more time to pay it off. This is because the longer you take to pay off the balance, the more interest you will have to pay. As such, it is crucial to understand the impact of a debt consolidation loan before you obtain one.
2. Run the numbers
Before taking out a debt consolidation loan, you also need to consider whether there are more efficient alternatives to consolidation. For instance, you may be able to renegotiate the terms of your existing loans by directly communicating with your creditors. Another consideration you should evaluate is whether to include all your debts in a consolidation.
The answer to this is usually no. Say, for example, you have multiple credit cards with 16% to 18% rates plus a student loan with an interest rate of 4%. You then find a balance transfer card whose rate will be 12% following an initial six-month low-rate promotional period. Although transferring the balances of your credit cards to that card will reduce the rates you pay on them, the 12% rate will be way higher than the rate of your student loan. Hence, it is advised not to include low-interest loans in your consolidation loan.
3. Do not run up new debts
Obtaining a debt consolidation loan allows you to receive only one bill every month for your debts, and you even have the chance to lower your interest rate and monthly payments. While this may provide you with a sense of relief, you should fight the urge to reward yourself with a splurge.
Hence, avoiding running up new debts after consolidating the previous one would be advisable. By sticking to a budget and making regular payments every month, you will soon have the chance to enjoy a debt-free life.
Overall, debt consolidation is a great way to take control of your debts and reduce the amount of interest you pay monthly. However, as with any other type of loan, a debt consolidation loan is not always the best option in all situations. To ensure debt consolidation will benefit you, it would be great to follow the best practices for consolidating loans, such as the ones shared in this article.
If you are looking for the most reliable and valuable debt consolidation loan to help manage your debts better, look no further than Orange Credit! We are a reputable money lender offering easy cash loans with fast loan approval in Singapore. If you are specifically planning to consolidate your loans, we have an extensive debt consolidation plan that can assist you in breaking free from your debt cycle. Do not hesitate to reach out to us today for more information about how to get approved for a debt consolidation loan or to learn more about our loans.