What Is Debt Consolidation?

What Is Debt Consolidation?

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Most of us have seen the plethora of debt consolidation ads on television. There is a lot of competition in the debt consolidation industry because unfortunately, lots of people are struggling financially and these businesses provide much needed financial relief. Mortgages, car loans, credit cards; people can acquire loans from a huge variety of lenders for almost anything nowadays. The dilemma is that all these loans are difficult to manage and if you fall behind in your monthly repayments, you can find yourself in a lot of trouble.

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

The Basics

Debt consolidation enables you to settle all your current debts with a new loan that generally has different (and in many cases more enticing) interest rates and terms. There are a range of reasons why people use debt consolidation services.

High-Interest Rates
All loans have differing interest rates and terms, however, credit cards likely have the highest interest rates of all loans. Even though credit card companies often have a no interest period of about 1 or 2 months, the interest rates after this time can soar up to 25% or higher. If you end up in a position where you’re paying 25% interest on your credit card loans, it’s more than likely that your debt will cultivate much faster than you’re able to pay it off. Commonly, debt consolidation can provide lower interest rates and better terms, which can save you a great deal of money in the long-run.

Too much confusion with multiple loans.
When you have a wide range of debts with varying interest rates and minimum repayments that are due at different times, there’s no doubt that it can be difficult to manage and can become confusing at times. This increases the probability of overlooking a repayment which can give you a bad credit rating. Debt consolidation substantially helps in this situation by merging all of your debts into one which is significantly easier to manage and gives you a clearer picture of when you’ll be debt free.

High Monthly Repayments
When people are facing multiple debts, it’s very difficult to manage your cash flow as a result of the high minimum repayments required for each debt. Further to this, different debts have different repayment dates and this can cause people 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 rating, and your financial scenario can go south rather quickly. Debt consolidation loans provide one repayment every month, and you can negotiate your monthly repayment amounts based upon the length of time you wish your loan to be.

Despite the benefits, if you have an interest 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 uncover a large range of debt consolidation companies, some are good, some are bad, and some are straight-out predatory. To begin with, you’ll need to pick a debt consolidation company that has lower interest rates and fees than all of your current debts. You’ll also want to take a look at the terms and conditions meticulously. Certain consolidation loans can be secured against your home or other assets, and you may be required to pay additional fees such as application fees, legal fees, stamp duty and valuation. The truth is, there is plenty of research that needs to be done before you can figure out if debt consolidation is the right option for you.

As you can clearly see, there are a range of benefits associated with debt consolidation for individuals that are struggling financially. Lower interest rates and fees, lower monthly repayments, and less confusion with multiple debts can save you a huge amount of money in the long-run, and it’s most probably better for your emotional wellbeing too. This article isn’t intended to persuade you to consolidate your debts, as it all depends upon your financial state of affairs. 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 problems. In some situations, filing for bankruptcy is a better alternative, so before you make any decisions about your financial future, get in touch with Bankruptcy Experts Newcastle on 1300 795 575 or visit their website for additional information: www.bankruptcyexpertsnewcastle.com.au


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