While financial problems are often seen as something that should not be attacked “creatively,” the most effective solution for dealing with large debts is remarkably different from simply paying them off one by one. While direct payments are considered by many to be the simplest way to manage financial problems, they can leave anyone paying at increased rates, managing multiple arrears at once, and struggling for time to actually earn the money required to pay them back.
The problem is perception. For many people, financial problems mean limited options. When they owe money, it means a real effort to pay it back as quickly and directly as possible. This behavior runs on both financial ignorance and age-old biases.
The smartest, and simplest, way to solve financial problems full of arrears is not to attack it directly, but to service it using a debt consolidation loan. This simple process means paying off multiple financial obligations using one larger loan, typically a low-interest consolidation loan from a major bank or program. By focusing on paying back one larger loan over time, people pay back at a lower interest rate, in smaller portions and over a longer time period.
This solution has two major benefits. The first, most obviously, is the dramatically decreased interest rates that people are subjected to. Credit cards are notorious for incredibly high interest rates, and a debt consolidation loan offers a way to avoid these ridiculous payments. With interest rates at record lows, taking out a consolidation loan to pay off credit card arrears puts anyone in a very powerful position.
Secondly, this strategy allows people to pay off financial obligations over a longer period of time. While paying off credit card bills over the long-term is typically a poor strategy — interest builds up and bills can increase dramatically — using a debt consolidation loan to do so is often a very good idea. With lower interest rates, the extra time allowed to pay off financial obligations means increased spending power in the meantime, less financial worries and stress, and a much simpler, semi-automated payment system.
Taking on a debt consolidation loan can also be a positive strategy for anyone’s credit rating. While missing several credit card payments can prove absolutely disastrous for their credit rating, using a consolidation loan to pay off financial obligations leaves them with positive events on their credit reports. For those who are facing bad credit, this strategy could be the push their ratings need in order for them to qualify for potential future financing.
All in all, while financial illiteracy often leads people down the most direct road for solving financial problems, the side streets can and will prove much more fruitful. By exploring debt consolidation loans for credit card bills, car payments or home financing, people can save themselves lots of time and significant amounts of money. Not to mention the stress of juggling multiple arrears at once.