Other Solutions and Advice - Consolidation Loans

Debt Consolidation refers to the process of consolidating an individual’s multiple debts into one, more easily manageable debt, be it a loan, credit card or re-mortgage.

Advantages

The advantages of consolidation are that an individual can reduce the number of creditors to 1, thus reducing the number of companies to deal with, as well as only having one monthly payment to make on the same date each month. This may be preferable to multiple creditors and juggling different payment dates, which can often lead to oversights and ultimately fees being charged. By consolidating debt, an individual can also decrease their monthly payments into a more manageable amount by extending the length of the loan or by having a secured loan which can help reduce the interest charged. This can free up much needed monthly income to pay for living essentials, whilst also having a definite timeline to becoming debt free. Furthermore, provided regular monthly payments are kept, it could help increase an individual’s credit rating.

Disadvantages

However, as with any debt solution, there are several points to consider. If an individual takes a secured loan to consolidate the debts and then does not make the regular monthly payments, then they could be faced with losing their home. If the loan is unsecured, this could increase the interest rate an individual is paying. By increasing the length of the loan (in order to reduce the monthly amount) the added interest over that period could result in the total amount repayable to be far higher. It is vital that anyone looking at a consolidation loan is clear about the terms and conditions before taking it, as well as carefully reviewing the interest being paid to existing creditors versus that of the potential consolidation loan. There is also a risk that once the debts have been consolidated, an individual may be tempted to start spending on the recently cleared credit cards, which may ultimately lead the individual in to a far worse situation.

Research

By carefully considering all options available and shopping around for the best deals with reputable loan providers, a consolidation loan can be a convenient way to clear debts in an affordable way. However this must be carefully calculated preferably with the help of a reputable debt consultant.

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