What is a Debt Consolidation Loan and Who is it Right For?

Sometimes, circumstances force us to rack up huge credit card bills with high interest rates. Whether the reason is an emergency like unexpected health issues or sudden retrenchment, having multiple debts makes it harder to pay them off. People often find themselves taking new loans to pay off old ones. A debt consolidation loan can help you exit this vicious cycle. Find out what a debt consolidation loan is, and whether it is right for you.

What is a debt consolidation loan?

A debt consolidation loan is a single loan that combines all your outstanding loans into one. It offers a fixed interest rate and tenure, and automatic monthly payments. It is similar to taking a new loan with a financial entity such as a licensed moneylender, where the moneylender consolidates the various payments on your behalf.

What are the benefits of a debt consolidation loan?

Licensed moneylenders in Singapore charge a maximum of 4% interest per month, making this a much more viable option to service debts compared to those with far higher interest rates. A debt consolidation loan is also a good option when banks do not approve your loan application because of a poor credit rating.

By contrast, debt consolidation loans allow you to maintain your credit rating. It reflects your ability to pay punctually and in full, making it easier to get approval for future loans. The increased flexibility of a single payment per month also allows you to use available funds more efficiently, helping you improve your quality of life and potentially even repaying the loan early.

It’s important to note that a debt consolidation loan does not reduce the principal amount you owe on your existing debts. Rather, it extends the tenure of your loan repayment and provides a much more serviceable interest rate for the monthly payments. Licensed moneylenders in Singapore can also help you come up with a long-term plan to service the loan, taking in your financial circumstances and needs.

How do I know if a debt consolidation loan is right for me?

If you are fatigued from the stress of managing multiple loans and constantly calculating your finances, a debt consolidation loan is perfect for you. It takes the burden of coordination off your shoulders, giving you peace of mind and allowing you to have more time and energy to improve your finances.

Also, if your credit score is important to you, getting a debt consolidation plan is a good idea as it enables you to pay off your debts, which will improve your score.

Interested to learn more? Visit R2D Credit to understand how you can get a debt consolidation loan at an affordable interest rate.