People in America accumulate more debt than they can handle for a variety of reasons. Many of them take loans to pursue a college education. Others use the funds to buy automobiles or a house. On the other hand, some individuals simply overuse their credit cards to make purchases. However, over time, they find it very difficult to repay their dues promptly. This puts immense pressure on their finances as they barely make ends meet. It doesn’t take long for them to realize an important fact. Paying only the minimum balance isn’t going to improve their precarious situation. They got to search for a better solution. This is where debt consolidation comes into the picture.
Why should borrowers opt for debt consolidation schemes?
Financial experts say handling multiple loans is never an easy task for most borrowers. They got to keep track of the due date of each repayment. These individuals can’t afford to miss even one. Otherwise, it can have an adverse effect on their credit ratings. This is something they obviously would like to avoid at all costs. It also doesn’t take for the debtors to receive notices from collection agencies asking them to pay up. This is why they should seriously consider opting for a suitable debt consolidation solution. In a financial scheme, they are able to convert their numerous small debts into a single one. It comes with a single monthly repayment at a comparatively lower rate of interest.
The professionals point out the following three important reasons why loan defaulters should consider this option:
- Only a single debt to deal with
People who manage multiple debts have got to remember the repayment dates all of them. Just one default on any of these payments can cost them a lot of money. They’ll end up having to incur interest charges, penalties, and even late fees. Such expenses only add to their ever-increasing liability. Fortunately, this is not the case; these borrowers opt for a suitable debt consolidation solution. Under this scheme, they just need to deal with a single loan. This helps to ease the pressure on their finances. It also makes life less stressful for them. They should overlook this critical fact.
- Comparatively lower interest rate
Commercial and personal loans are generally available at high rates of interest. The lenders offering such funds fix such charges according to the conditions of financial markets. Moreover, this mode of finance has its own set of stringent terms and conditions. People who opt for them should be aware of this critical fact. However, in the beginning, they may not seem to realize the consequences of their decisions. These borrowers only grasp the gravity of the situation when they start defaulting on their repayments. It is them they look for a viable solution. This is where a convenient debt consolidation scheme can help them out. Such loans come at a much lower interest rate. This helps such individuals save some money.
- Credit history
Debt consolidation loan schemes are a boon for people with unimpressive credit score. Lenders offering such schemes to the public generally don’t lay too much emphasis on this criterion. It is a far cry to the counterparts in the banking sector. However, they do expect all their borrowers to make their repayments on time. The specialists of creditable finance companies like Nationaldebtreliefprograms.com stress an important fact. This simple act can go a very long way in helping individuals improve their creditworthiness. It also goes a long way in putting their finances on the back on track. This is one vital aspect which they shouldn’t overlook.
The financial specialists further explain that people should keep in mind the following three important facts about debt consolidation:
- The scheme doesn’t erase its existing debt obligations
People need to understand an important fact about this unique refinancing scheme. According to the law of the land, debt consolidation doesn’t waive their existing outstanding liabilities. It simply merges them into a single one. They still have to clear their repayments before their due dates. It just makes their existing obligations more manageable than before. This is one aspect which they should consider before opting for it.
- The implication of tax laws
Lenders may waive the outstanding loans of their borrowers in exceptional circumstances. This act may on a long way in easing the pressure on the finances of these individuals. However, there is one important liability which they can’t avoid. They got to pay tax on this foregone debt. The officials of the Internal Revenue Service (IRS) follow this rule to the letter. However, this is not the case with debt consolidation. People who opt for this scheme can still enjoy deduction on their interest payments. However, they got to prove that they got the funds by providing suitable collateral.
- A new lender receives the repayments
All debt consolidation scheme is tripartite financial agreements. When borrowers opt such programs, their current lender passes on their debts to a new one. This financier then combines these multiple liabilities into a single one. On top of this, he/she modifies the terms and conditions of the new loan. This also includes the interest clause. The subsequent repayments these individuals make it to the new lender.
- Abstain from incurring further debt
People can opt for debt consolidation schemes only under one important condition. They have got to refrain from taking further loans. They also keep abstaining from overusing their credit cards. At the end of the day, these individuals have got to focus on clear their existing liabilities.
Debt consolidation schemes are a blessing for people who a neck-deep in outstanding liabilities. Opting for such programs can help them regain their peace of mind. In the process, they can get their finances back in order and control their spending habit. The impact on their credit score can come to a surprise for them. The above three important reasons prove this fact without any reasonable doubts. However, they first got to understand the laws governing such mode of finance. After all, the tax implications are an aspect which they can’t overlook. Only then can these individuals make proper decisions on step they need to take.