What Is Debt Consolidation?

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Nearly all of us have seen the myriad of debt consolidation advertising campaigns on TV. There is a lot of competition in the debt consolidation market because sadly, lots of individuals are struggling financially and these businesses provide much needed financial relief. Mortgages, car loans, credit cards; people can get loans from a wide variety of lenders for almost anything in today times. The challenge is that all these loans are difficult to manage and if you fall behind in your monthly repayments, you can end up in a lot of trouble.

The concept behind debt consolidation is that you can take each of your existing debts together and consolidate them into one, easy to handle loan that is simpler and gives you a much clearer picture of your financial future. For many individuals, there are a range of benefits in consolidating your debts, and this article will take a look at debt consolidation thoroughly and the benefits they provide to give you a better understanding if debt consolidation is a good opportunity for your financial situation.

The Basics

Debt consolidation allows you to settle all your current debts with a new loan that generally has different (and in most cases more appealing) interest rates and terms and conditions. There are numerous reasons why individuals use debt consolidation services.

High-Interest Rates

All loans have varying interest rates and terms, however, credit cards certainly have the highest interest rates of all loans. Though credit card companies normally have a no interest period of about a couple of months, the interest rates after this time can escalate up to 25% or higher. If you find yourself in a situation where you’re paying 25% interest on your credit card loans, it’s highly likely that your debt will increase much faster than you’re able to pay it off. Normally, debt consolidation can provide lower interest rates and better terms and conditions, which can save you a lot of money in the long-run.

Too much confusion with multiple loans.

When you have many debts with varying interest rates and minimum repayments that are due at different times, there’s no doubt that it can be very difficult to manage and can become confusing at times. This increases the chances of forgeting a repayment which can give you a bad credit history. Debt consolidation certainly helps in this scenario by merging all of your debts into one which is far easier to handle and gives you a clearer picture of when you’ll be debt free.

High Monthly Repayments

When people are encountering multiple debts, it’s challenging to manage your cash flow as a result of the high minimum repayments required for each debt. On top of 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 simply don’t have the money, your interest rates are likely to be increased, you can get a poor credit rating, and your financial position can go south particularly quickly. Debt consolidation loans provide one repayment each month, and you can negotiate your monthly repayment amounts based on the length of time you want your loan to be.

Having said all this, if you have an interest in consolidating your debts, it’s paramount that you conduct appropriate research to find the best debt consolidation interest rates and terms. You’ll come across a wide range of debt consolidation companies, some are good, some are bad, and some are entirely predatory. First and foremost, you’ll want to select a debt consolidation company that has lower interest rates and fees than all your current debts. You’ll also want to inspect the terms cautiously. A number of consolidation loans can be secured against your home or other assets, and you may be required to pay extra fees for example application fees, legal fees, stamp duty and valuation. The reality is, there is plenty of homework that needs to be done before you can conclude if debt consolidation is the right option for you.

As you can obviously see, there are a number of benefits associated with 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 considerable amount of money in the long-run, and it’s most likely better for your psychological wellbeing too. This article isn’t written to persuade you to consolidate your debts, as it all depends on your financial situation. As a result of 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 instances, filing for bankruptcy is a better alternative, so before you make any decisions about your financial future, contact Bankruptcy Experts Geelong on 1300 795 575 or visit their website for more details: www.bankruptcyexpertsgeelong.com.au

 

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