What Is Debt Consolidation?


We’ve all seen the plethora of debt consolidation advertising campaigns on TV. There is a great deal of competition in the debt consolidation market because unfortunately, many people are struggling financially and these businesses provide much needed financial relief. Home loans, car loans, credit cards; individuals can get loans from a large range of lenders for practically anything nowadays. The problem is that all these loans are hard to manage and if you fall behind in your monthly repayments, you can end up 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 simpler and gives you a much clearer understanding of your financial future. For a number of people, there are a range of benefits in consolidating your debts, and this article will take a look at debt consolidation thoroughly and the advantages they provide to give you a better understanding if debt consolidation is a good alternative for your financial position.

The Basics

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

High-Interest Rates

All loans have varying interest rates and terms and conditions, however, credit cards undoubtedly have the highest interest rates of all loans. While credit card companies normally have a no interest period of around a couple of months, the interest rates after this time can escalate 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 likely that your debt will grow much faster than you’re able to pay it off. Normally, debt consolidation can provide lower interest rates and better terms and conditions, which can save you a lot 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 question 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 considerably helps in this scenario by combining all of your debts into one which is significantly easier to take care of and gives you a clearer picture of when you’ll be debt free.

High Monthly Repayments

When individuals are encountering multiple debts, it’s very difficult to manage your cash flow due to 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 simply don’t have the money in the bank, your interest rates are likely to be increased, you can get a bad credit history, and your financial position can go south very 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.

Having said all this, if you’re interested in consolidating your debts, it’s paramount that you perform proper research to find the best debt consolidation interest rates and terms and conditions. You’ll come across a vast array of debt consolidation companies, some are good, some are bad, and some are outright predatory. Firstly, you’ll need to choose 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 cautiously. Certain consolidation loans can be secured against your home or other assets, and you may be required to pay extra fees such as application fees, legal fees, stamp duty and valuation. The reality is, there is a great deal of homework that needs to be done before you can figure out if debt consolidation is the right option for you.

As you can obviously 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 lot of money in the long-run, and it’s possibly better for your emotional well-being too. This article isn’t intended to convince you to consolidate your debts, as it all depends upon your financial position. As a result of the complexity and the many 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 difficulty. In some instances, declaring bankruptcy is a better alternative, so before you make any decisions about your financial future, get in touch with Bankruptcy Experts Toowoomba on 1300 795 575 or visit their website for more details: Bankruptcy Toowoomba

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