There are several types of debts. Some debts can become your investment and become your future reliable place for earning, some debts can become your way to build up your life assets and help you acquire some assets for you and your family. Apart from that some loans can be called as outstanding debt and they do not have any return, in other words these loans are called as consumer debts which you use only for the cause of consumption and they only drain out money from your wallet, do not gets anything in return.
No matter, what kind of debts you have taken; the truth is that the life of modern people now is shaped with all these debts. You cannot really do without debts. There are several things in our life which was very much hard to achieve in past, but now, they are very much easy because of the presence of the system of lending and borrowing. At the same time, as the system of borrowing can ease our life, it can also create hurdle in the way of life and put a huge amount of difficulties in our financial life.
In order to get rid of these obstacles, the experts provide debt management system. There are several ways through which you can manage your debts and improve your financial situation. In some situations, when you have too many debts, you can also end up providing a huge amount of money as penalty charges. So, when you apply a debt management method towards your outstanding debts, there is no longer need of paying such charges. That means, debt management methods not only help you to get rid of your financial problems and improve your finance in that way, it also helps you to save some precious money for you as well.
Ways of debt management:
There are several types of ways to manage your debts. The financial experts suggest versatile kind of debt management method depending on the kind of financial problem you have. Among them, one of the major debt management methods is debt consolidation program, financial assessment and budget creation etc. these methods are described below:
Debt consolidation program:
The debt consolidation programs are one of the most prominent types of debt management program. The debt consolidation program is called as the finest solution ever provided by the money lenders. Before you understand how debt consolidation program helps in managing your debts, let’s get to know what debt consolidation is:
What is meant by debt consolidation program?
The debt consolidation is actually a loan program. It is usually taken by the borrowers who have a multiple number of loans. The borrower makes the new loan and it consists of the total amount of all the previous loans owned by the borrowers. In other words, the system of loan consolidation is making a new loan that consolidates all the previous loans into one loan. Through making the loan consolidation, the borrower has no change in the total amount of money he or she owes. The only change he or she gets is the change in the total number of loans owned. Let’s describe it in more detailed way:
Suppose you have two debts. For the first one, you are in debt of $5000 and the second keeps you in a debt of $6000. So, in total you have a debt of $11,000. If you want to consolidate these debts, you will make one loan that consists of total $11,000, and with the loan money, you would repay the previous loans you have. So, now with the new consolidated loan, you have a loan that still makes you a debtor of $11,000. The only change you have is that previously you had two loans, but now you have only one loan.
There are also other changes that are brought by the loan consolidation systems. The impacts of loan consolidations are very much helpful for the borrowers and that is why they are considered as one of the greatest debt managing methods. Let’s get to know the other impacts of loan consolidation as well.
Saves time and money:
Consolidation of loans or converting your multiple numbers of loans into just one loan helps you a lot in saving up time and money. For multiple numbers of loans, you have different amount of loan fees and also a different payment schedule. It is quite hectic to make out times differently to repay back different loans in different occasions of life. So, when you consolidate all these loans into one loan and repay only once in a month rather twice or thrice, it becomes a huge time saver. Thus when you apply the loan consolidation method in your life for managing the debts, it helps you to save precious times.
The debt consolidation loans will not only help you in saving up time, but also it will help you in saving up money. You will not have to pay different loan fees for different amount of loans when you are consolidating your loans. Different amount of loan charges or interest charges for loans without collateral are also not applied when you are consolidating the loans. To be more detailed:
Suppose you have three debts. For the first debt, you have borrowed $1000, $2000 at the second and $3000 for the third debt. It is not necessary that the interest charges of these three debts are the same as you have borrowed them from different lenders. So, let us say that the interest rates applied on these loans are 5%, 6% and 7%. At the same time, when you repay the loans in installments every month, you have to pay some loan fees. Let’s say you repay a loan fee of $10, $15, and $20 for per loans. Now if you have to pay 10% of the capital for each loan every month in installments, then:
- For the first loan, you will have to pay $(100+50+10) or $160 in total for capital, interest rate and the loan fee. Now, if you have to pay the loan in total 10 installments, then in every installment you will pay $160. So, for repaying the total loan, you are paying $1600. That means that for repaying a loan of $1000, you are paying $600 as interest rates and loan charges.
- For the second loan, you will have to pay $(200+120+15) or $335 in total for capital, interest rate and the loan fee. Now, if you have to pay the loan in total 10 installments, then in every installment you will pay $3350. So, for repaying the total loan, you are paying $3350. That means that for repaying a loan of $2000, you are paying $1350 as interest rates and loan charges.
- For the third loan, you will have to pay $(300+210+20) or $530 in total for capital, interest rate and the loan fee. Now, if you have to pay the loan in total 10 installments, then in every installment you will pay $530. So, for repaying the total loan, you are paying $5300. That means that for repaying a loan of $3000, you are paying $2300 as interest rates and loan charges.
- In total, you are paying an amount of $(600+1350+2300) or $4250 as loan interest rates and loan fees for repaying three debts that in totally stands as $6000.
Now, if you consolidate the total loan amount into one loan, in a loan rate of 5% and the loan fee is $15, in average, your expenditure will be lower than what you had to spend for three loans. For say, you need to repay the total loan in 10 installments. Then for each installment, your expenditure would be, $(600+300+15) or $915 as payable amount for the loan. So, for total number of installments, you will have to pay an amount of $9150. Among this outstanding amount of $9150, you are paying $6000 as the capital amount of the loan and $3150 as the loan fees. Though, for the previous three individual loans you had to pay an amount of $4250 as loan fees. So, by consolidating the loans you can save a total amount of $1100.
Thus, through consolidating the debts you can save a huge amount of money on loan fees and the interest rates that you have to pay on loans. Al though the financial experts comment on this issue, claiming as- consolidating the loans can reduce actually one third of the total expenditure you have to make for the multiple number of loans. The debt management through debt consolidation loans also becomes blissful with the output of saving time.