Debt consolidation loans are often the most viable way out of a potential debt cycle. When you find yourself juggling several high-interest loans and credit card debts, you might consider going for a debt consolidation loan. 

However, such loans aren’t suitable for everyone. A wrong financial decision on your end can simply complicate your situation. Experts at established organizations like alpinecredits.ca can help you finalize your decision. So if you fancy taking one of these loans and freeing yourself from the debt cycle, it makes sense to consult the experts at the outset.

Let’s explore when you should consider a debt consolidation loan and when this option won’t be viable for you.

What is a debt consolidation loan and how does it help?

Simply defined, debt consolidation refers to obtaining a loan to combine several outstanding debts into a single account. Typically, creditors give personal loans or home equity loans to deserving candidates with the potential to repay the amount during debt consolidation. This way, you can combine all your outstanding dues, whether a payday loan, unpaid utility bills or credit card dues, into a single manageable account. With a healthy credit score, you can easily qualify for a debt consolidation loan.

Once you combine all your outstanding dues, you simply need to make a single repayment on a particular day each month throughout the loan tenure. This implies that you would have a lower risk of missing out on the repayment dates. The rate of interest of the consolidated loan would be lower than that of the individual accounts combined. Responsible borrowers can breathe easy with one of these loans facilitating their cash flow.

Situations when you should go for a debt consolidation loan

Here are certain situations when you can actually benefit from a debt consolidation loan.

1. Your credit score looks impressive

If you have a healthy credit score, banks and credit institutions are likely to grant you a debt consolidation loan. Typically, individuals with a credit score of more than 670 can easily qualify for these loans. However, if your credit score has got several red spots, you won’t get the approval. Instead, it would result in a credit inquiry and further push the score down.

2. Your repayment plan looks concrete

Make sure to formulate a concrete repayment plan based on your debt-to-income ratio. This ensures that the loan amount won’t stress your finances excessively. Without a proper plan, you would end up paying up only the minimum amount each month. 

This way, you would never manage to get out of the debt cycle. So, it makes sense to seek professional support from Alpine Credits to find out how much you can repay each month. Based on this, the experts would guide you in choosing the loan amount and tenure.

3. Your debt is large enough

Obtaining a debt consolidation loan involves shelling out some processing charges. Therefore, consider consolidating your debts only if the amount is large enough or you have too many accounts. In case you have the adequate cash flow to pay off the loan within a year, don’t go for a debt consolidation loan. The credit processing fees would outweigh any benefit you might have on cards.

4. You can improve your finances

Before you take a debt consolidation loan, you should develop a strategy to improve your finances. Controlling overspending largely helps in this regard. Limit your credit card use and try to curtail costs before you go for this loan. Otherwise, you would simply land up in a similar situation after a few months. This would also take a toll on your credit score.

For instance, you can’t avoid medical or health loans under emergent conditions. However, you can refrain from making impulse purchases.

5. You can get a lower interest rate

Settling for a consolidated loan makes sense only when you get to enjoy a lower interest rate. At times, poor credit score prevents borrowers from qualifying for a low rate of interest. Instead, you might end up paying more than what you are forking out now if the interest rate of the consolidated loan is high enough. With professional guidance from Alpine Credits, you can decide whether you should go for a debt consolidation loan.

Situations when debt consolidation loan isn’t the option

Here are certain situations when a debt consolidation loan wouldn’t bail you out of your financial crisis.

1. Poor spending habits

You might find a debt consolidation loan apparently appealing as it would free up your credit cards. However, if you fail to mend your spending habits, going for a debt consolidation loan isn’t worth it. After all, the credit won’t do you any good if you keep overspending.

2. Associated charges

Some credit institutions charge several associated charges like closing costs, balance transfer charges, annual fees, and origination fees when they process a debt consolidation loan. You need to factor in all these expenses before settling with a consolidated loan. If you find that these associated costs ultimately outweigh your benefits, there’s no point in going for the loan.

3. More interest payment

Remember, a debt consolidation loan can last for a long time, up to seven years. So, you might be shelling out more money in terms of interest over this period. If you are in a position to manage several loans in a shorter tenure, like two to three years, you can avoid taking a debt consolidation loan.

Endnote

Going for a debt consolidation loan makes sense only if the credit bails you out of the financial crunch. In other words, it should solve the underlying financial issues. Established companies like Alpine Credits can help you make the right financial decision. 

Of course, you can get instant relief from multiple debt accounts breathing fire on your neck with these loans. Once you evaluate your repayment capacity and financial sincerity, you can decide whether a debt consolidation loan would help you. No wonder experienced minds can guide you in making critical decisions.