Debt Consolidation:
An Option To Consider?

Debt consolidation is certainly an option worth considering, but for it to work at its best, it is important to find out about it before you are in too deep, as in order to get a really good deal you need your credit rating to be still intact.

The idea of debt consolidation is to take out one loan to pay off all outstanding debts, which has a lower monthly repayment than the other loans put together. Usually, these loans need to be secured against something, either a house or a car, so you can get yourself into even more difficulty if you don’t keep up with the repayments.

If you don’t have suitable collateral, then you may have to find someone to stand as guarantor for your loan. In order to get a good interest rate, and hence keep your repayments lower, you will need to have a good credit rating, which is why it is important to consider it before you have missed lots of other payments and damaged your rating.

It is important to remember that a debt consolidation loan is still a loan which needs repaying, and before you enter into any agreement look out for any hidden costs which may be hidden in the small print. Make sure you know exactly what you will need to find each month, and what costs there are, if any, to start up the loan.

You need to really work out your figures and make sure that you are actually going to benefit in the long run from debt consolidation. Although it may give you immediate relief and make the payments more manageable, the chances are that the loan will be actually spread over a much longer period of time, so in the long run you could actually be paying much more for the same amount of money.

Debt consolidation does not remove your debt; it is still there and still needs to be repaid eventually.

There is one fatal trap which you should definitely make sure you don’t fall into. If you do decide to opt for debt consolidation, it is very important that you stop using your credit cards and don’t take out any future loans.

Although this may seem like obvious advice, it is surprising how many people fall into the trap and end up in an even worse situation than they were in the first place. Once you have sorted out your finances, make sure that you can afford the repayments on the loan and don’t take out any more loans for any other reason. Stop spending and start living within your means.

In conclusion, here are the main points to consider about whether the time is right for debt consolidation for you.

• Don’t wait too long when you’re already in too deep and have missed repayments.

• Check the small print carefully for hidden costs and extras

• Check your figures; is this deal really as good as it looks at first sight?

• Be confident that you will be able to meet the repayments.

• Don’t take out any extra loans or credit.