Consolidating Your Debt with a Personal Loan

Written by imoney

What is Debt Consolidation?

One smart way to pay off your debt is to consolidate your debt. This allows people with multiple debts to combine all existing debts to create a larger loan with lower interests.  The more you borrow, the lesser the cost of borrowing. It is sensible that when you have only one debt to think of, it is easier to be in complete control.

Debt consolidation is referred to as the combination of several loans merge into a large one. Many Filipinos borrow money for Fiestas, Birthday Parties and the like even if they know that they will have difficulty in paying off said debts. So if you are one of them, you should consider consolidating your debts to keep things smooth and simple. By then, you will incur lower interest rates to pay and less follow-up problems.

What You Should Know Before Consolidating Your Loans

This might be quite enticing but there are certain things that need to be considered before proceeding to consolidate your loans. First is to consider that you will still be paying a large monthly repayment – debts don’t disappear if they are not repaid. Even after consolidation, one must persist in changing their financial habits in order to avoid any further spiraling debt.

As a first step, you need to figure out the size of all loans, each monthly repayment and the duration left on all outstanding loans. To achieve this, a loan calculator is a handy tool.

The next thing that needs to be done is to compare your debts with your income. This will allow you to budget your expenditure so as to satisfy the debts you have. If you see that everything seems to fit (ie your income is more than the planned monthly repayment). Approach different banks and compare the interest rates and promotions offered on their personal loan products. Use comparison sites such as iMoney to speed up this process. You should make sure that the financial institution is dedicated in helping you lessen your debts instead of adding to your burdens.

The last step that you should consider is that there is no assurance that you could lessen the amount you pay through debt consolidation. Debt consolidation is not a debt solution. It merely combines all your debt into one single, more manageable loan. If your current monthly repayments seems smaller in figure, check if it is due to a longer loan term, for which you may be paying higher interest rates.

Ready to take out a personal loan? Find out which bank has the lowest personal loan rates in the Philippines.