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.
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.
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.
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.