To Consolidate or Not to Consolidate
Debt consolidation loans can seem a good way to go if you are finding it difficult to juggle multiple debts to multiple creditors. People with a number for debts (for example, store or credit cards) may look at debt consolidation as an ideal way to pay off the total balance of all their borrowing and end up with one more manageable monthly repayment. However, as with all financial matters, there are a number of points you need to consider carefully before going ahead.
Consolidation debt loans just one of the many alternative debt solutions available. For some people, bad credit loans, a debt management plan or IVA might be a better fit.
In the last few years, with the ever-increasing availability of credit, a lot of people struggling with problem debt have turned to a debt consolidation product to simplify their borrowing - opting either for an unsecured loan or by securing the debt on their property.
In some cases, the interest rate on debt consolidation loans can be lower than the interest payable on other products, making the switch a viable proposition. Credit and store cards and also payday loans are generally an expensive way to borrow. Therefore, a debt consolidation loan that will result in one repayment per month can prove cheaper and simpler than attempting to manage a number of other more expensive loan repayments.
So in certain circumstances, it may seem advisable to consolidate your debt. If you are able to identify that you are in danger of getting into hot water financially before you have actually missed any repayments, then your credit rating will be protected, providing that you have not yet been issued with a default notices.
If you select a decent debt consolidation loan with a more competitive interest rate than your existing debts, then this should result in a lower monthly payment to just one creditor. Working out your total income and outgoings should help to clarify just what you can and can’t afford. If you experience any difficulties with the calculations, you should consider approaching an independent financial advisor for guidance.
Some people who go down the debt consolidation loan route will subsequently apply for further credit and they may run up further debt on a credit card. This will only serve to compound the debt problem even further, of course, and will often leave them in a worse position than they were before they consolidated. Therefore, if you are seriously considering taking out a debt consolidation loan, you must be confident that you will not need to use your credit card or run up any further debt until you have repaid the loan in full.
Getting debt consolidation loans may be significantly more difficult for people with a bad credit rating, and the very high interest rates that people in this position are sometimes offered may make it an unrealistic solution. Specialist providers do offer bad credit loans to people falling into this category. Generally speaking, secured loan interest rates will be lower than those on unsecured loans. However, to qualify for these you do need to own a property.