Are your debts with high-interest rates burying you financially? It might be time to consider a debt consolidation loan. Did you know that as of March 2019, the Australian debt rate is 189.7 times the average disposable income? This is due to the skyrocketing prices and the need for personal loans to accomplish personal goals. 

Undoubtedly, the debt can be crippling to mental health, and the need to repay them successfully can be quite the hurdle. Moreover, with multiple debts, it can be financially challenging to repay all the loans successfully. That’s why debt consolidation loans exist. However, when and whether to choose them is a tough decision. You can get specialized debt consolidation loans or use personal loans to consolidate your debt by reading this review of Freedom Debt relief. Often, either the lender will pay off your debts, and you repay them, or they will give you a loan to clear your debts. 

This article will walk you through debt consolidation loans and educate you on their pros and cons and when to choose this option. 

What are debt consolidation loans?

Debt consolidation loans are the magic ticket to consolidating all your debts into a single loan. It converts all your debts into a single personal loan, providing you with a means of getting control over your finances and paying off multiple debts. If you’re struggling with debt, consider working with debt resolution consultants to explore your options for debt consolidation. You can get specialised debt consolidation loans or use personal loans to consolidate your debt. Often, either the lender will pay off your debts, and you repay them, or they will give you the loan to clear your debts.

You can get specialised debt consolidation loans or use personal loans to consolidate your debt. Often, either the lender will pay off your debts, and you repay them, or they will give you the loan to clear your debts. 

Pros of debt consolidation loans 

The pros of debt consolidation loans include the following: 

• Helps you streamline your finances
• You’ll have a better idea of when your debt will be paid off 
• It will help you save money on interest 
• You might get a lower interest rate if you have a good credit score 
• It can help you improve your credit score as you pay off credit cards, make on-time payments, and pay off the loan

Cons of debt consolidation loans 

While debt consolidation loans are a magic ticket, it has a flip side too. The cons of this loan are as follows: 

• It might have added costs like closing costs, annual fees, organisation fees, and more
• If your credit score is low, you might get a high-interest rate 
• It might not solve the underlying financial issues like overspending 

When to avail them 

You avail of debt consolidation loans when it provides maximum benefits to you. Here are the best situations when you can opt for debt consolidation loans: 

• When you feel overwhelmed with the high-interest debts you have incurred.
• Ensure you have analysed your finances and have scope for improving them successfully. 
• You should have a high credit score to qualify for a low-interest rate. It will help you save on interest.
• When you have enough cash flow to cover your monthly debt comfortably. 

These situations ensure you don’t get stuck with a loan you cannot repay. Suppose you are unable to repay debt consolidation loans. You’ll incur hefty fees and damage your credit score. 

A debt consolidation loan enables you to combine all your debts into a single loan. It offers you control over your financial situation. Essentially in such a loan, you pay off all your debts with a single loan and have a single repayment amount and due date instead of several. 

You take this loan when you have many high-interest loans, have a good credit score, and find your debt overwhelming. Remember that debt consolidation loans can prove beneficial when you want to streamline your finances. However, the flip side is that they can be expensive in terms of fees and affect your credit score if you fail to repay your loans. 

So, read about debt consolidation loans thoroughly before you opt for them!