What Is Debt Consolidation?

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All of us have seen the myriad of debt consolidation advertisements on TV. There is a great deal of competition in the debt consolidation market because sadly, many people are struggling financially and these companies provide much needed financial relief. Home loans, car loans, credit cards; people can get loans from a huge range of lenders for virtually anything in today times. The trouble 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 notion behind debt consolidation is that you can take each of your existing debts together and consolidate them into one, easy to manage loan that is easier and gives you a far clearer picture of your financial future. For many people, there are a variety of benefits in consolidating your debts, and this article will explore debt consolidation in detail and the benefits they provide to give you a better understanding if debt consolidation is a good choice for your financial condition.

The Basics

Debt consolidation allows you to pay off all your current debts with a new loan that typically has different (and in many cases more attractive) interest rates and terms. There are a couple of reasons that people use debt consolidation services.

High-Interest Rates

All loans have varying interest rates and terms, however, credit cards most certainly have the highest interest rates of all loans. Whilst credit card companies regularly have a no interest period of about one or two months, the interest rates after this time can surge up to 25% or higher. If you find yourself in a position where you’re paying 25% interest on your credit card loans, it’s very likely that your debt will grow much faster than you’re able to pay it off. Generally speaking, debt consolidation can provide lower interest rates and better terms, which can save you a considerable amount of money in the long-term.

Too much confusion with multiple loans.

When you have several debts with varied interest rates and minimum repayments that are due at different times, there’s no question that it can be challenging to manage and can become confusing at times. This increases the risk of forgeting a repayment which can give you a bad credit history. Debt consolidation considerably helps in this situation by combining all of your debts into one which is notably easier to manage and gives you a clearer picture of when you’ll be debt free.

High Monthly Repayments

When individuals are facing multiple debts, it’s very difficult to manage your cash flow because of 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 rating, and your financial condition can go south rather quickly. Debt consolidation loans provide one repayment each 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’re interested in consolidating your debts, it’s necessary that you conduct proper research to find the best debt consolidation interest rates and terms. You’ll come across a large range of debt consolidation companies, some are good, some are bad, and some are straight up predatory. First and foremost, you’ll need to opt for a debt consolidation company that has lower interest rates and fees than all of your current debts. You’ll also need to review the terms and conditions diligently. Various consolidation loans can be secured against your home or other assets, and you may be required to pay extra fees like application fees, legal fees, stamp duty and valuation. The reality is, there is a considerable amount of homework 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 lot of benefits related to debt consolidation for people that are struggling financially. Lower interest rates and fees, lower monthly repayments, and less confusion with multiple debts can save you a great deal of money in the long-run, and it’s probably better for your mental wellbeing too. This article isn’t written to encourage you to consolidate your debts, as it all depends upon your financial circumstances. Because 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 distress. In some circumstances, declaring bankruptcy is a better solution, so before you make any decisions about your financial future, talk with Bankruptcy Experts Penrith on 1300 795 575 or visit their website for more details: www.bankruptcyexpertspenrith.com.au

 

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