Things to consider before Debt Consolidation
Consolidating your debts into one consolidation loan has its advantages. Only making one monthly payment each month is one of them – rather than having to make several payments to a variety of creditors. A big advantage of debt consolidation is that you only have one creditor to deal with rather than several and therefore managing your finances is a lot easier. It is also likely that your credit rating will improve with debt consolidation particularly if you include all of your credit card accounts in the consolidation. On top of these advantages, the monthly repayment on the consolidation loan may be a lot lower than the sum of the repayments you would have been on the multiple loans.
However this may be down to several different factors. The first one of these is that the length of the term of the consolidation loan may be (much) longer than the terms of the original loans. A second factor is that you may have agreed to allow the loan to be secured on your property. Lower monthly repayments are usually based on one or both of these factors. While the interest rate on the proposed consolidation loan may be lower that the rate you are paying on your accounts at present, the total amount you will have to repay could be increased due to the length of the term of the consolidation loan.
What can go wrong in debt consolidation? If you are having difficulty making your debt repayments you will need to be sure that you can comfortably pay the consolidation loan payments over the full term agreement. You will need to stop using any credit facilities you have for example you will need to stop using any credit cards you have and stop using any overdrafts or any accounts which led to your financial trouble. When you have paid off all your debts with the loan, you will find that your previous creditors may want to offer you further business with you and make all kinds of credit offers to you. Resist these offers at all costs, if you want to avoid finding yourself struggling again.
A second disadvantage is that you may decide to secure the loan on your property and that if you are unable to keep up the repayments on the loan you risk loosing your property. While you may achieve a low interest rate by agreeing to secure the loan on your property, the likely long term of the consolidation loan means that you give up some flexibility relating to your mortgage.
Therefore think carefully when deciding about debt consolidation. Consider other debt options available which may be more appropriate to your situation. For example you may be insolvent and if so you could either enter into an Individual Voluntary Arrangement or petition for Bankruptcy. Both of these are personal insolvency processes that protect you from your creditors and are legally binding. Even if you are not insolvent, you can enter a Debt Management Plan (DMP) with your creditors. You can do this yourself by reaching agreement with each of your creditors as to how you will repay your debts to them. Whatever you decide to do when looking for debt help take any advice on offer and avoid consolidation until you are aware all your options.
For help and advice becomingdebt free visit national debt relief where they can help and also provide you with more help and advice on debt consolidation.
