Debt Consolidation is one method you can use to help you take control of your debt.
In some cases a Debt Consolidation Loan makes sense and in other cases it could make your problem worse.
In this post I look at Debt Consolidation and provide information on what to look out for, including help if you are struggling with your existing debt.
What is Debt Consolidation?
Debt Consolidation is where you take all of your debts and consolidate them into one loan. This results in you making a single payment each month until your debt is repaid.
What to look out for
If you are considering a Debt Consolidation Loan but need some help with what to look out for, here are some things you should be aware of.
The Interest Rate on the Debt Consolidation Loan
If the interest rate is much higher than all the credit it is paying off, it might not make sense to consolidate your debt. The only benefit would be that you would only have one payment to make instead of making separate payments to each debt. However the cost of this single payment is that you will pay more interest.
What will you do with your existing Credit?
If you decide to take out a debt consolidation loan, what will you do with your existing store and credit cards? The temptation may be there to spend on them again. The problem with this is that you will end up even further in debt. So the very solution to your problem could cause further problems for you. Will you be closing your existing accounts?
The Length of time it will take to repay the loan
If it will take longer to pay off the debt consolidation loan than it would to pay off all your debt separately, it doesn’t make sense. Aside from the benefits of consolidating your debt, you also want to be out of debt as quickly as possible. Prolonging the time you are in debt will also cost you more in interest payments in most cases.
Make sure you can afford the repayments
The repayment could be higher than that of all your existing credit combined. Make sure that you will be able to comfortably make the payment each month.
You may have to secure the loan against your home
If you miss payments, your home could be at risk.
Debt Consolidation Help
Finding a provider should be as easy as using a comparison website such as Money Supermarket or possibly doing a Google search. However be careful of companies that will try to sell you other solutions to get you out of debt.
It might we worth consulting a Financial Adviser to see what other options are available to you. It might be that you can rework your monthly expenditure to free up cash to pay towards your existing debts.
As with any loan, taking out a Debt Consolidation Loan is a big commitment. If you fail to repay your loan you could end up loosing your home if the loan has been secured against it.
Getting approved for a Debt Consolidation Loan
If you have a good credit rating you should be able to get approved. However if your credit rating is poor, you may still be able to get a loan but at a much higher interest rate. Consider whether this premium is worth it or not. Increasing your debt is not going to help you in the long term.
If you are already behind with a lot of your debt payments, you may find it very difficult if not impossible to get a debt consolidation loan.
Alternatives to Debt Consolidation Loans
If you are already behind with your debt payments and have defaulted, or you are receiving contact from debt collection agencies, you may find the solutions listed below more suitable. Click on the links to find out more.
The above depends on your own personal circumstances. If you are struggling with debt then please seek help as soon as you can. Visit the Debt Help section of this blog to get started