Debt Consolidation – Appropriate For You?
If you are carrying a number of debts and not coping, then debt consolidation could just be right for you. Debt consolidation means that you take a new loan which pays off all your other debts and makes it easier for you to get on top of your money problems. Be warned though, this solution doesn’t always work for everyone and you could end up deeper in trouble.
Always look for other solutions first before you take this step. Debt consolidation is only a temporary answer and it certainly doesn’t mean that you’ll now have less to pay, but will probably just mean that you can now handle all debts in one place. Different options could be:
Use whatever credit options you may have to best advantage, like credit cards, store cards, overdraft, extend your mortgage loan or make a personal loan.
Make new arrangements with the people you owe money to
Find counseling and advice from national counseling services.
Make a loan from friends or relatives where you won’t have to pay interest.
If you have no other option, and you have to make a debt consolidation loan, get the best interest rate and repayment terms you can. Deal only with above-board lenders. You could try a bank or similar for a personal loan. On the other hand, if you approach a consolidation loan with care it can work wonders. It will certainly sort out your financial affairs. It can:
Prioritize your debts and pay the most pressing ones
You have only one end-of-loan date to focus on with a consolidation loan
All your separate loans together could take longer to pay off than a consolidation loan
You only have to deal with one lending institution
You only make one payment total per month
Consolidation loans carry lower interest than other loans, for sure. This has to do with the term of the different loans.
Consolidation loans have advantages, but they also have disadvantages:
Your home will probably be put up as security for the consolidation loan, you could end up losing your home.
You may find that you’ve paid more and taken longer to pay it all off
You’re only dealing with one creditor now- if you get into more trouble, it could be more difficult to then come to another agreement
There could be extras to pay for like setting-up charges
You may be paying the consolidation loan plus the original loan interest because some on loans you pay off the interest first before you get to pay off the actual loan
You are the only person who can really decide what’s best for you and whether to make a consolidation loan or not. If you do go for it, remember that in the beginning you thought you could handle all your loans and then you couldn’t. For what reason will this now be different?