4 long-term benefits of debt consolidation

If you’re struggling to stay ahead of your bills and pay them all on time, debt consolidation can make your life easier. Replacing multiple debts with a single loan will simplify your finances, can save you money, reduce your stress level, and help you get out of debt faster. Common ways to consolidate debts include taking out a personal loan, a home equity loan or a cash-out refinance.

Here are 4 long-term benefits to consolidating your debts.

1. It simplifies your finances

Debt consolidation may be a good idea if you need to organize your debts into a simple repayment strategy. This leaves fewer financial tasks on your to-do list, leaving you with more time for other things.

Consolidation involves fewer payments

While a debt consolidation loan still involves repaying what you owe, a single monthly payment is easier to manage than multiple payments. Additionally, you may find a way to save money each month when you consolidate into a loan with lower interest rates, a longer loan term, or both.

Find more room in your budget

You’ll no longer need to keep up with multiple deadlines, which can make it less stressful to make required payments. As you build a budget, having a single line item to wipe away several previous minimum payments makes managing a budget easier. Additionally, locking in a fixed monthly payment can allow you to fit other expenses into your budget.

2. You can pay less interest

When you consolidate debt, it’s often possible to pay a lower interest rate.

Consolidation pays off high-interest debts

Depending on what kind of debt you have, consolidating high-interest debts like credit cards with a personal loan, cash-out refinance, or home equity loan can reduce your interest rate. With a fixed-rate loan, your new payment will never change.

Free up cash

When getting a personal loan to pay off high-interest debts, it’s often possible to save money each month due to lower interest rates. A lower monthly payment can build some breathing room into your budget.

3. Faster debt repayment

Many aspire to get out of debt as soon as possible. Consolidating your debt may open the door to faster repayment.

More affordable monthly payment obligations

If you lock in a lower interest rate, you’ll likely enjoy a lower monthly payment.

In some cases, you can redirect the savings toward paying down the debt. As you make extra payments, you’ll lower the loan balance and accelerate your debt repayment. Even if you don’t make extra payments, consolidating your revolving credit card balances into a fixed-rate loan with a defined term can help you pay off the debt faster.

How term differences affect repayment

When making minimum credit card payments, it can take many years to repay the loan. And the final repayment date can change if you add any debt to your card.

In contrast, opting for a fixed-rate personal loan comes with a defined term. You’ll know exactly how long it will take to repay the debt with regularly scheduled payments.

Depending on your situation, you can opt for a shorter term to pay down the debt faster. For example, if you can find significantly lower interest rates, you might choose a shorter loan term with a similar monthly payment to eliminate the debt from your life.

4. Less stress from debt management

When it comes to personal finance, the numbers don’t always paint the entire picture. If you are managing multiple debt payments that constantly seem to drain your bank account, that adds stress to your life. Unfortunately, stress can take a toll on your physical and mental well-being.

Luckily, debt consolidation can help reduce your financial stress.

Worry less about payments

Financial stress, stemming from factors like a high debt-to-income ratio, puts strain on your physical and mental health, according to research from Columbia University. Debt consolidation offers one way to take control of your debt and potentially lower your financial stress.

When you consolidate debt, you go from multiple payments to one. Additionally, a lower interest rate or shorter loan term could save you money that you can use to make progress toward debt repayment and building a brighter financial future.

More opportunities to save for emergencies

Once you lock in a lower monthly payment and make progress toward paying down your debt, you’ll have more breathing room in your budget. The increased financial bandwidth can give you a chance to build an emergency fund.

Most experts recommend saving three to six months’ worth of expenses as an emergency fund. But any amount of savings can help you weather the potential storms that life throws your way, like a medical expense, car repair, or job loss. With this buffer in place, it’s likely you’ll gain a new measure of financial peace.

The bottom line: Debt consolidation simplifies debt management

Debt consolidation goes beyond solving a cash flow issue in the short term. It also offers many long-term benefits as you build a solid financial future.

If you believe you can benefit from debt consolidation, apply for an online personal loan today with Rocket Loans.