If you are considering refinancing of your loans due to multiple outstanding bills and haywire gone payments, debt consolidation is the right resort for you. It not only helps to bring your finances in place but also helps you create a good healthy financial management plan. It always allows you to save money as your outgo towards interest on loan amount and payments towards loans substantially reduce. Thus, making it the best option to choose in times of messed up finances.
What other financial steps can you take?
As under the category of Debt Consolidation, there are various tools available to execute the process. However, if you are considering restructuring your loans, there are other ways to take a dip into financial management with regards to your debts. Take a look -
Refinancing
You may want to opt for refinancing as it offers lower interest rates and/or monthly payments on your on-going loans. You can replace your high interest loans to much lower ones in order to refinance your debts for more affordable terms. Other reasons why you could opt for refinancing are
1. You may choose another lender who seems to offer lower interest rates on your loan. This will help you lower your monthly EMI.
2. You may opt for refinancing in case you have been fuelled with liquidity to pay of your loans earlier than the tenure. Thus, you could choose a vendor who is offering a short-term loan without foreclosure charges.
3. You may choose to combine all your unsecured loans into a single secured loan with the benefit of a lower interest rate.
Balance Transfer
Balance Transfer is a process in which you opt for a vendor who offers lower interest rates on credit cards. Thus, you transfer the debts from all the on-going credit cards to the one that offers the lowest interest rate. However, in the process you only end up transferring your debts, and not really paying them off. The process of Balance transfer is chargeable. Though, if you have a very good credit score, you might be offered a zero-balance transfer card. The major benefit of this instrument is that it helps you save on the high interest outgo charged on the outstanding payments.
What is the difference between Debt Consolidation and Refinancing?
Debt Consolidation helps combine multiple loans into one single loan with the help of a personal loan, whereas refinancing helps reap the benefits of a lower interest rate on debts when replaced. It aims to provide more favourable terms for servicing your loan making it more affordable on the pocket.
Considering that you have multiple on-going outstanding payments like credit card bills, loans for home or vehicle loans, it would be your best bet to opt for Debt consolidation loan. However, if you get a better offer on your existing home loan with lower interest, refinancing would be more fruitful. So, you need a thorough analysis in order to be able to choose the right instrument to get your finances on the right track!