Debt Consolidation - A Loan Unlike Any Other
Why do we borrow? Cars, holidays, TVs, home improvements… the reasons might vary, but all loans mean we end up owing more. Or do they?
Debt consolidation loans stand out from the crowd. Unlike other loans, they’re designed to help people deal with the debt they already have. So they’re fundamentally different to other kinds of loan.
The principle is simple: borrowers consolidate their debts by taking out a new loan large enough to pay them all off. This can deliver three benefits in particular.
Benefits of consolidation
First of all, repaying one loan is simply easier than repaying many. Rather than juggling multiple debts - paying different creditors different amounts at different times - the borrower can just make one monthly payment. Since it’s easier to manage, the borrower is far less likely to make payments late (or not at all!), which can lead to anything from penalty charges to higher interest rates, and which always looks bad on a credit rating.
Second, there’s a good chance the new consolidation loan will come with a lower interest rate, especially if it’s used to pay off high-interest debts like credit / store cards and overdrafts.
Third, a consolidation loan gives the borrower a chance to think carefully about repayment terms. If they couldn’t keep up with repayments to their ‘old’ debts, it might make sense to pay back the consolidation loan over a longer period of time. It’ll mean they stay in debt for longer (and perhaps cost them more in the long run), but it’ll reduce their monthly payments, and sometimes that’s the most important thing.
Drawbacks of consolidation
However, there can be drawbacks to debt consolidation.
First, as mentioned above, paying a debt back more slowly means it’ll take longer gathering interest, so the total amount repaid can be higher.
Second, consolidation loans - unless handled carefully - come with a very real danger. When someone uses the loan to pay off their debts, they have to be very careful not to run up fresh debts (particularly tempting on credit / store cards and overdrafts, since they make it all too easy to borrow a few pounds here and a few there). So in general, debt consolidation is a solution that’s suitable for people who are confident in their ability to say ‘no’ to fresh credit. Anyone who isn’t confident could well be better off with a different debt solution.
Alternatives to consolidation
Either way, it’s always important to talk to a debt adviser who understands the full range of available solutions, such as debt management plans, IVAs (Individual Voluntary Arrangements), Trust Deeds (for residents of Scotland) or even bankruptcy. Each solution is unique, and its benefits and drawbacks can affect different people in very different ways - which is why it’s so important to talk to an expert first.
Melanie Taylor is associated with DebtAdvisersDirect.co.uk. For more information about debt consolidation, debt management, debt advice & Individual Voluntary Arrangements (IVAs), please visit http://www.debtadvisersdirect.co.uk/
Article Author :Melanie_Taylor
Last 5 posts in Debt Consolidation
- Eliminate Credit Debt - CRA - Credit Reporting Agencies - August 31st, 2008
- Fix Your Finances With Debt Relief - August 31st, 2008
- Few Tips For Credit Card Debt Relief - August 31st, 2008
- Info on Credit Card Consolidation - August 29th, 2008
- Credit Card Consolidation - Pay Off Debt - August 29th, 2008
If you don’t pay on time then you have to Eliminate Credit Debt. When the month is longer than your income - one fact is obvious - it cannot continue for very long - you have to stop the rot.
CRAs, the credit reporting agencies are a central information base for all credit card companies and they receive millions of reports every day. If you are a few days late, it might remain a secret, but if you go over 30 days, they’ve got you. This info will definitely reach your credit report and your score starts to fall. It can… Continue reading
Credit card debt is like a creeping disease - but we can Eliminate Credit Debt and eliminate the disease if we know the rules of the game.
The credit card companies do not want you to know all the rules - they rule when we are ignorant of the rules! Did you get that?
Stores offer cards, gas stations, my old granny and her dog offer cards, and they stuff our mailboxes - how do the US Post Office handle it all? It’s too easy to have too many cards. When you charge your purchases, it doesn’t seem like you are spending… Continue reading
If you are looking for debt relief, then you are not alone. The average household is finding themselves overwhelmed with debt lately. With the cost of living increasing, rising costs and bills to pay, this creates difficult situations when it comes to credit.
Those who find themselves far in debt are having trouble dealing with their finances and finding a way out.
It is enough to try and figure out how you are going to make your minimum monthly payments, but when you factor in other bills and necessities it is enough to make you crazy. If you can figure out your… Continue reading
