What Is Debt Consolidation?

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All of us have seen the plethora of debt consolidation ads on TV. There is a great deal of competition in the debt consolidation market because sadly, lots of individuals are struggling financially and these companies provide much needed financial relief. Home loans, car loans, credit cards; individuals can acquire loans from a broad variety of lenders for virtually anything in today times. The challenge is that all these loans are hard to manage and if you fall behind in your monthly repayments, you can find yourself in a lot of trouble.

 

The concept behind debt consolidation is that you can take all your existing debts together and consolidate them into one, easy to manage loan that is easier and gives you a much clearer picture of your financial future. For some people, there are a number of benefits in consolidating your debts, and this article will examine debt consolidation thoroughly and the advantages they provide to give you a better understanding if debt consolidation is a good opportunity for your financial situation.

 

The Basics

 

Debt consolidation allows you to repay all your current debts with a new loan that typically has different (and in most cases more attractive) interest rates and terms. There are several reasons why people use debt consolidation services.

 

High-Interest Rates

All loans have differing interest rates and terms and conditions, however, credit cards possibly have the highest interest rates of all loans. Whilst credit card companies normally have a no interest period of around one or two months, the interest rates after this time can surge up to 25% or higher. If you end up in a situation where you’re paying 25% interest on your credit card loans, it’s highly likely that your debt will grow much faster than you’re able to pay it off. Generally, debt consolidation can provide lower interest rates and better terms and conditions, which can save you a lot of money in the long-term.

 

Too much confusion with multiple loans.

When you have quite a few debts with varied interest rates and minimum repayments that are due at different times, there’s no doubt that it can be very difficult to manage and can become confusing. This increases the possibility of forgeting a repayment which can give you a poor credit rating. Debt consolidation significantly helps in this situation by merging all of your debts into one which is far easier to handle and gives you a clearer picture of when you’ll be debt free.

 

High Monthly Repayments

When people are grappling with multiple debts, it’s very difficult to manage your cash flow because of the high minimum repayments required for each debt. In addition to this, different debts have different repayment dates and this can cause individuals to struggle just to make ends meet. If you miss a repayment because you just don’t have the money, your interest rates are likely to be increased, you can get a poor credit report, and your financial circumstances can go south particularly quickly. Debt consolidation loans provide one repayment each month, and you can arrange your monthly repayment amounts according to the length of time you want your loan to be.

 

Having said all this, if you’re interested in consolidating your debts, it’s essential that you do plenty of research to find the best debt consolidation interest rates and terms and conditions. You’ll discover a large variety of debt consolidation companies, some are good, some are bad, and some are straight-out predatory. First and foremost, you’ll need to pick a debt consolidation company that has lower interest rates and fees than all your current debts. You’ll also need to inspect the terms and conditions vigilantly. Various consolidation loans can be secured against your home or other assets, and you may be required to pay extra fees like application fees, legal fees, stamp duty and valuation. The fact is, there is a great deal of research that needs to be done before you can determine if debt consolidation is the right option for you.

 

As you can clearly see, there are a lot of benefits related to debt consolidation for people that are struggling financially. Lower interest rates and fees, lower monthly repayments, and less confusion with multiple debts can save you a considerable amount of money in the long-term, and it’s perhaps better for your psychological wellbeing too. This article isn’t intended to encourage you to consolidate your debts, as it all depends upon your financial situation. Due to the complexity and the numerous variables to consider, it’s highly recommended that you seek professional advice so you can at least get an idea of what option is best for you if you’re experiencing financial distress. In some scenarios, declaring bankruptcy is a better solution, so before you make any decisions about your financial future, get in touch with Bankruptcy Experts Sunshine Coast on 1300 795 575 or visit their website for more information: www.bankruptcyexpertssunshinecoast.com.au

Charles Bosse

Director of Fresh Start Solutions and specialises in helping people free themselves from overwhelming debt. Whether it's Bankruptcy, Liquidation, Insolvency Advice or simply General Debt Advice.

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