Debt Consolidation Tips
If you have found yourself struggling to manage multiple debts, it can be a serious task working out the best strategy for handling them. Many people are understandably tempted by debt consolidation; however, the usefulness of this approach depends greatly on your own circumstances and on which options you explore.
Consolidation Loans
Many people find the very fact that a consolidation loan leaves you with one payment rather than several appealing. However, a consolidation loan is only worth exploring if it will ease the strain on your finances in both the long and short term.
Consolidation loans work on the basis that you receive a loan to pay off your existing debts and are left just with the debt for the consolidation loan itself. If you are thinking about one, use one of the online calculators to work out whether it will help you.
Check not only whether the monthly payments are preferable, but also whether you will pay back less in total, and that you will not end up paying it back over a much longer time than if you had stuck with your debts as they stand.
The other thing to bear in mind is that, even if you have decided to get a loan to consolidate your debts, it need not be one that is advertised as a consolidation loan. You can also investigate personal loans and borrowing from your bank, using this to pay the debts. If you use property to secure a loan you will likely receive better rates, but there is a natural risk to this property as a result.
Balance Transfers
Many people use the balance transfer options offered by creditors to combine multiple debts into one. Again, you need to make sure these deals are worthwhile, by calculating the cost over time. Remember that attractive interest rates may only last for a short period and may rise later.
Services
Debt Management and Counselling services operate up and down the country, and in many cases are free of charge. The professionals who work for these organisations are well placed to advise you about your consolidation options, and in some cases will offer consolidation services themselves.
One of the ways that they do this is to allow you to pay them your available funds each month, and they then decide how best to distribute this to your creditors to best reduce your debts. The effect of this for you is that you make one payment to the Debt Management organisation, and they handle the details. As always, you need to make sure that you only use the services of a reputable organisation.
Think
In general, consolidating your debts often seems more appealing than it really is. If you investigate a loan for example, you may well find that it presents no added benefit to your current situation. Your existing set of debts may not be ideal, but at the end of the day you are going to have to pay them off eventually, debt consolidation merely moves the debt around a little, it does not make it go away.
