Truth about consolidation

Debt is a drag. Every month, multiple bills clutch at your purse strings, demanding your full attention. Staying on top of each one can be a daunting task. A debt consolidation loan might be the solution you’re looking for. It involves managing one monthly payment instead of several payments.

Here’s how it works: A financial institution extends you a loan that equals your outstanding debts to some or all of your existing creditors. You then use the loan to pay off your debts to those accounts, and are left with a single loan to repay to the financial institution.

If you’re interested in merging everything into one easy-to-manage payment, here are some of the advantages of a debt consolidation loan:

One payment per month makes budgeting easier

Replacing multiple payments with a single payment should make it easier to plan your budget each month. One payment equals less time spent planning.

Save money with a lower interest rate

Most consolidated loans have lower interest rates than credit cards do, so you may be able to reduce your interest payments by consolidating. This will save you a lot of money in the long run.

Protect your credit score

A consolidated debt loan can also improve your credit score. If you often make late payments on your accounts, your credit score will certainly take a hit. Streamlining to one payment and staying on top of it will help you rebuild a damaged credit rating.

Get some peace of mind

You’ll also feel less stressed. We all know that debt is a real soul-sucker, and one of the most common causes of stress. Knowing that you only have one payment to make each month allows you to feel more in control of your financial situation.

You’ll want to shop around for the right debt consolidation loan, as the interest rates offered by assorted banks and credit unions can vary. It doesn’t cost anything to apply for the loan itself, but a fee may be charged to open your file with the lender. This is where tools come in handy. Prospera Credit Union offers a debt consolidation calculator that helps you determine whether consolidating your debt into a single loan is the right choice for you.

A final tip: Prospera recommends applying a portion of your consolidated loan’s monthly payment savings to the balance of the loan itself. You can save hundreds to thousands of dollars doing this, and knock years off of your loan. Find out how to do this with their debt accelerator.

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