Debt Consolidation and its Advantages

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by: stickystebee
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Date: Sun, 24 May 2009 Time: 6:19 PM
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Is debt consolidation a good thing? The answer to this frequently asked question is that it all depends on your individual circumstances. In certain cases debt consolidation is certainly a good thing, but not in every case.

What exactly do we mean by debt consolidation? Put simply, debt consolidation means putting all your debt in one place. For instance, if you have a number of outstanding debts such as credit cards, bank loans, overdrafts and possibly other loans, then debt consolidation means taking out a single loan that will pay off all these others. You then just have to pay one loan and make a single payment every month.

How is this advantage? This is advantageous in a number of ways. It is much easier to plan for a simple payment than having to make multiple monthly payments to a large collection of creditors, and you will be able to reduce your monthly outgoings, in many cases quite considerably.

Why will I pay less money? It is highly likely that your credit cards will have high interest rates and so will be costing you a great deal of money in the long term. If you are only making minimum payments on them then you would not pay them off for a great many years and your total interest would be enormous.

Do I have to own property to get such a loan? If you own a property that has equity then it is certainly easier to get a debt consolidating loan than if you do not. You are also likely to obtain a lower interest rate if the loan is secured on your property. This is not to say that it is essential to own property. There are many lenders who will provide unsecured debt consolidation, but as this is a higher risk for the lender the interest rates will be higher. Even so, they are likely to be lower than those that you are currently paying on your credit cards.

How do I proceed? The best course of action is to talk to a debt management organisation.

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Is debt consolidation a good thing? The answer to this frequently asked question is that it all depends on your individual circumstances. In certain cases debt consolidation is certainly a good thing, but not in every case.