What Is Debt Consolidation?

Nearly all of us have seen the multitude of debt consolidation advertisements on TV. There is plenty of competition in the debt consolidation market because sadly, lots of people are struggling financially and these businesses provide much needed financial relief. Home loans, car loans, credit cards; people can attain loans from a large variety of lenders for practically anything nowadays. The dilemma is that all these loans are hard to manage and if you fall behind in your monthly repayments, you can find yourself in a lot of trouble.

 

The idea behind debt consolidation is that you can bring each of your existing debts together and consolidate them into one, easy to handle loan that is easier and gives you a far clearer understanding of your financial future. For a number of individuals, there are a range of benefits in consolidating your debts, and this article will explore debt consolidation thoroughly and the advantages they provide to give you a better understanding if debt consolidation is a good choice for your financial situation.

 

The Basics

 

Debt consolidation allows you to pay off all your current debts with a new loan that often has different (and in many cases more desirable) interest rates and terms and conditions. There are several reasons that people use debt consolidation services.

 

High-Interest Rates

All loans have differing interest rates and terms, however, credit cards most certainly have the highest interest rates of all loans. Whilst credit card companies normally have a no interest period of approximately a couple of months, the interest rates after this time can skyrocket up to 25% or higher. If you end up in a situation where you’re paying 25% interest on your credit card loans, it’s very likely that your debt will increase much faster than you’re able to pay it off. In general, debt consolidation can provide lower interest rates and better terms, which can save you a great deal of money in the long-run.

 

Too much confusion with multiple loans.

When you have lots of debts with varied interest rates and minimum repayments that are due at different times, there’s no question that it can be hard to manage and can become confusing at times. This increases the chance of forgeting a repayment which can give you a poor credit rating. Debt consolidation dramatically helps in this scenario by combining all of your debts into one which is much easier to handle and gives you a clearer picture of when you’ll be debt free.

 

High Monthly Repayments

When individuals are encountering multiple debts, it’s challenging to manage your cash flow because of the high minimum repayments required for each debt. Further to this, different debts have different repayment dates and this can cause people to struggle just to make ends meet. If you miss a repayment because you just don’t have the money, your interest rates are likely to be increased, you can get a poor credit rating, and your financial situation can go south particularly quickly. Debt consolidation loans provide one repayment each month, and you can negotiate your monthly repayment amounts according to the length of time you wish your loan to be.

 

With that being said, if you’re interested in consolidating your debts, it’s crucial that you do plenty of research to find the best debt consolidation interest rates and terms and conditions. You’ll come across a vast range of debt consolidation companies, some are good, some are bad, and some are straight-out predatory. First of all, you’ll want to choose a debt consolidation company that has lower interest rates and fees than all your current debts. You’ll also want to assess the terms meticulously. Various consolidation loans can be secured against your home or other assets, and you may be required to pay additional fees including application fees, legal fees, stamp duty and valuation. The truth is, there is plenty of homework that needs to be done before you can figure out if debt consolidation is the right option for you.

 

As you can clearly see, there are a number of benefits related to debt consolidation for individuals that are struggling financially. Lower interest rates and fees, lower monthly repayments, and less confusion with multiple debts can save you a great deal of money in the long-term, and it’s most likely better for your mental wellbeing too. This article isn’t meant to encourage you to consolidate your debts, as it all relies on your financial scenario. Due to the complexity and the numerous variables to consider, it’s highly recommended that you seek professional advice so you can at least get an idea of what option is best for you if you’re experiencing financial hardship. In some scenarios, filing for bankruptcy is a better option, so before you make any decisions about your financial future, speak with Bankruptcy Experts Melbourne on 1300 795 575 or visit their website for more details: www.bankruptcyexpertsmelbourne.com.au

 

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