What Is Debt Consolidation?

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All of us have seen the multitude of debt consolidation advertisements on TV. There is a huge amount of competition in the debt consolidation industry because unfortunately, lots of individuals are struggling financially and these businesses provide much needed financial relief. Mortgages, car loans, credit cards; individuals can obtain loans from a vast range of lenders for virtually anything in today times. The challenge is that all these loans are hard to manage and if you fall behind in your monthly repayments, you can end up in a lot of trouble.

 

The idea behind debt consolidation is that you can take all of your existing debts together and consolidate them into one, easy to handle loan that is simpler and gives you a much clearer understanding of your financial future. For a number of individuals, there are a number of advantages in consolidating your debts, and this article will examine 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 pay off all your current debts with a new loan that generally has different (and in many cases more attractive) interest rates and terms. There are a range of reasons that individuals use debt consolidation services.

 

High-Interest Rates

All loans have varying interest rates and terms, however, credit cards likely have the highest interest rates of all loans. Though credit card companies often have a no interest period of about 1 or 2 months, the interest rates after this time can escalate up to 25% or higher. If you end up in a position where you’re paying 25% interest on your credit card loans, it’s more than likely that your debt will grow 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 good deal of money in the long-term.

 

Too much confusion with multiple loans.

When you have several debts with varied interest rates and minimum repayments that are due at different times, there’s no question that it can be challenging to manage and can become confusing. This increases the probability of missing a repayment which can give you a bad credit rating. Debt consolidation considerably helps in this situation by merging all of your debts into one which is significantly easier to take care of and gives you a clearer picture of when you’ll be debt free.

 

High Monthly Repayments

When people are experiencing multiple debts, it’s tough to manage your cash flow as a result of the high minimum repayments required for each debt. In addition to this, different debts have different repayment dates and this can cause individuals 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 bad credit history, and your financial situation can go south rather quickly. Debt consolidation loans provide one repayment every month, and you can arrange your monthly repayment amounts according to the length of time you wish your loan to be.

 

Having said all this, if you have an interest in consolidating your debts, it’s vital that you perform plenty of research to find the best debt consolidation interest rates and terms and conditions. You’ll come across a wide variety of debt consolidation companies, some are good, some are bad, and some are entirely predatory. Firstly, you’ll need to choose a debt consolidation company that has lower interest rates and fees than all of your current debts. You’ll also need to inspect the terms very carefully. Certain consolidation loans can be secured against your home or other assets, and you may be required to pay additional fees for example application fees, legal fees, stamp duty and valuation. The reality is, there is a considerable amount of homework that needs to be done before you can conclude if debt consolidation is the right option for you.

 

As you can evidently see, there are a variety of benefits related to debt consolidation for people that are struggling financially. Lower interest rates and fees, lower monthly repayments, and less confusion with multiple debts can save you a good deal of money in the long-term, and it’s probably better for your mental wellbeing too. This article isn’t meant to convince you to consolidate your debts, as it all depends on your financial condition. 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 adversity. In some scenarios, declaring bankruptcy is a better alternative, so before you make any decisions about your financial future, talk with Bankruptcy Advice on 1300 879 867 or visit their website for more details: www.bankruptcy-advice.com.au/

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