Frequently Asked Questions About Debt Consolidation Loans

Short Term Loan Singapore

Managing multiple loans and debts with different interest rates and payment deadlines can be quite taxing. If you’re struggling with repayment, a debt consolidation loan is a great option you can consider to streamline your finances. Especially if you are holding a couple of long-term and short-term loans, debt consolidation is a sensible solution to avoid adding up several loans to unmanageable figures. If you are looking to take out such a loan, read on to learn some of the most frequently asked questions that many have on debt consolidation loans.

1. How does debt consolidation work?

For those who aren’t that familiar with financial terms, debt consolidation might sound complex. However, it’s actually quite simple. Debt consolidation is the process of combining several debts into one through a personal loan. To put it differently, when you consolidate your debt, in a way, you are obtaining a new loan to pay off your several smaller debts or bills that currently need payments.

For example, if you have six different debts or bills that amount to $10,000, you can apply for a debt consolidation loan in Singapore for that amount. If your application is granted, you can pay off multiple loans at once and replace them with only a single monthly loan moving forward. This ultimately simplifies your debts.

2. How much should be borrowed?

To maximise the benefits that come with consolidating your debt, it’s best to carefully plan the amount of money that you’ll be borrowing. In doing so, it’s important to take into account the interest rate of the loan. If you can get a lower interest rate, it’s a good indication that debt consolidation might be right for you.

To start planning your debt consolidation loan, you can use a debt consolidation calculator to help you estimate the debts and bills that you’d like to consolidate. This calculation gives you an idea of what your monthly payments may look like. One key thing to note is that debt consolidation plans do not cover secured loans. Examples of secured loans are loans for housing, car, or loans taken for specific purposes (e.g. education or renovation).

3. Is debt consolidation going to be more advantageous?

As mentioned, debt consolidation comes with plenty of benefits. However, like all other loan solutions, consolidating your debt also has some risks and disadvantages. Whether or not seeking a debt consolidation loan is right for you heavily depends on your financial situation.

Generally, consolidating your debt with a personal loan is an optimal choice if you can get a new loan with more favourable terms and a lower interest rate than your current debts. Under this circumstance, you can pay off multiple outstanding balances at once and, a lower combined debt can free up cash in your monthly budget.

Conclusion

Debt consolidation is indeed an effective way to simplify your debts and streamline your finances. However, there is no one-size-fits-all approach when it comes to obtaining a debt consolidation loan. Debt consolidation might be favourable to some but disadvantageous to others if they do not attain a lowered interest through the new loan.

For this reason, it’s necessary to take the time to do your research. Finding the right moneylender and knowing what you’re getting into are the keys to maximising the potential benefits of debt consolidation.

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