One of the primary reasons people pursue debt consolidation is to save money as they work on reducing debt. While this is a very important potential benefit, debt consolidation can also provide other hidden benefits, both financial and psychological.
Switching your debt obligations to a lower interest rate and saving on interest payments is one key benefit of debt consolidation. For the same monthly payment, paying down debt at a lower interest rate means more of the payment is going toward the principal. The debt balance declines faster than at a higher interest rate. Over the life of the debt or loan, the total interest paid can be significantly less for a lower interest loan. The amount of time needed to pay off the debt can be shorter too, as long as more debt isn’t constantly added. There are also some less commonly known benefits of consolidating your debt.
Other financial benefits of debt consolidation
- The average American cardholder has 7 credit cards. In a two-parent household with other debt obligations for a car loan, student loan or mortgage, the household debt payments add up quickly. When there isn’t enough money to pay off all these debts in full, deciding how much money to allocate to each debt can be a difficult juggling act, one that is repeated every month. Consolidating debt can provide an easier management process, resulting in a lot fewer transactions to track.
- With so many debt payments, it is easy to miss one every once in a while, even with the best intentions. Missing a single minimum payment by just a few days can result in penalties and fees.
Hidden psychological benefits of debt consolidation
- For some borrowers, debt issues can create an overwhelming situation internally. Getting into debt beyond means of repayment can have serious effects on your emotional well-being. Being able to take control of your debt rather than letting your debt control you can relieve some of this stress and have a positive effect on your mental health.
- Simply taking less time to pay your bills every month and having the confidence that nothing has been forgotten can be a big stress reliever. A Harris Poll survey indicates that nearly one-quarter of American cardholders are surprised at least sometimes by a larger than expected credit card bill. Having a clearer picture of your financial situation and confidence that you have a well-defined path forward can be easier when you have fewer debts to manage. Seeing regular progress on debt reduction can be a big motivator to help you take additional positive action.
- Avoiding the stress of poor debt management can even have positive physiological benefits. Stress has been linked to the worsening of health conditions including obesity, heart disease, Alzheimer’s disease, diabetes, depression, gastrointestinal problems, and asthma. Reducing stress can make you feel better not only mentally, but also physically.
For the average debt-carrying household with credit card debt of nearly $16,000, pursuing debt consolidation for financial savings as well as hidden benefits is well worth investigating.