Managing a significant debt load is a difficult thing for any person. When you have multiple loans outstanding it can become even more cumbersome and difficult to handle. Consolidating your debt into a more manageable number of loans is sometimes beneficial. This article will provide you with situations when it is useful to consolidate your personal loans.
To begin with it is important to perform an overall assessment of your personal debt. Start by listing out your loans including the type of loan (mortgage, student, etc.), the interest rates associated with each loan, the repayment terms on the debt, and other ancillary factors like liens or guarantees on the debt and prepayment penalties, and the outstanding balance on each loan. By making a list such as this you will be able to more easily compare different loans that you have and using a spreadsheet program to compare can make the process greatly simplified.
From here eliminate which loans you cannot easily consolidate such as a mortgage loan or an auto loan. Since these are unique and are secured by the property underlying the loan other loans cannot be easily consolidated into these. In addition these loans typically have lower interest rates on them it is typically not beneficial to consolidate these into new loans. Eliminate these from consideration and review your other personal loans.
Once you have done this start shopping for new personal loans that you can use to consolidate existing debt. Check your credit rating and see if there are any ways to improve your rating to improve the personal consolidating loan you are going to apply to. See the interest rates that lenders are offering you for your new consolidating debt and compare this amount to any existing debt that you have. If the interest rate is lower on the consolidating loans it is typically beneficial to consolidate into the new loan.
In addition there are some added benefits to entering into a consolidated loan. For one, you have the ability to obtain better repayment terms on the new debt and can often push out your payments further in time to a point when it is easier for you to repay it. In addition, having one consolidated loan is easier to keep track of than several different individual loans where you would have to monitor and keep track of the payments on each of the individual loans. Finally, repaying your own loans will improve your credit rating even if you have a new consolidated loan for the same amount as you will show a positive history of repaying loans on your credit history.