With such a large variety of credit available on the market today, there has been a huge influx in solutions that are designed to help people deal with it once, it has become unmanageable. A popular term often used to refer to debt management is, Debt Consolidation, but what does this actually entail and what does it mean for the individual who decides to utilise it?
Debt Consolidation pros and cons
In its simplest form, Debt Consolidation is the amalgamation of a person’s unsecured debts. This is done by taking out a loan that is large enough to pay off the creditors that the individual owes money to in order to clear what they owe. The result of this is that they will only owe money to one creditor, making the monthly re-payment process far more manageable.
For instance, if you were to have two credit cards and one unsecured loan, each would be subject to a different Annual Percentage Rate (APR) making it difficult to keep track of how much interest you are paying. You would also have to deal with three separate re-payments of varying amounts on differing days of the month. The total amount that you would be re-paying as a result of adding together the three creditors could potentially be far more than what you could look to make as a monthly re-payment to a Debt Consolidation loan. Therefore it works out as being a far more efficient means of debt re-payment, even if the term of borrowing ends up being longer as a result of the reduced payments.
This could, of course, mean that you might have more disposable income available so that you can improve your standard of living, potentially even looking to start saving some money.
In addition, this can help to lower the stress levels which you might of being experiencing, as the debts you have consolidated will now be under one payment, which makes it easier to manage and you don’t have to worry about the high APRs spiralling out of control.
However, there are always going to be drawbacks with debt consolidation because, in theory, you are simply moving your debt around and ultimately it will still need to be dealt with. You could also find that if you have defaulted on some of your creditor re-payments in the past or only made minimum re-payments; your credit rating will have been affected. In turn this could potentially affect the rates at which you are offered the debt consolidation loan and you might find that the APR is high.
If you are struggling with your debts, there are several good reasons to consider debt consolidation. Nevertheless, there are also many more solutions available, which makes considering all of your options very important. Speaking to a debt solution expert who could help you to make an informed choice and ultimately access the solution that is best suited to your needs and circumstances.
By Dan Frodsham