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Debt Consolidation - Is right for you?

Debt consolidation is the process of taking out a loan that repays all of your smaller individual loans and essentially compresses them all into one, supposedly, more manageable loan. This can be a useful tactic if you are struggling with multiple loans and are facing uncompetitive levels of interest on many of them.

In spite of this, debt consolidation is not necessarily the most sensible route for everyone to go down. This is because some consolidation loans will act against your best financial interests. You should always sit down and work out exactly what you are spending at the moment and compare it to the amount that you would be spending on the loan you are considering. If you are not careful you could end up in a worse position than you were in originally.

Factors Affecting Debt Consolidation

The first thing that you should think about before deciding on travelling the path of debt consolidation is what it exactly it was that caused your current problems with debt. Think about whether or not you have numerous debts because your income cannot support your living costs. If this is the case, you may want to think twice about taking out a large loan with which to consolidate your debts. This is because all it is likely to provide you with is a short term solution to your problems, unless your income goes up or your living costs go down you will likely find yourself in a similar position to the one that you are currently in.

The next thing that you should think about is exactly how much it is that the new loan will cost you. If you think that you will pay less on interest and other fees than you do now, you may want to consider it. However if you are going to pay more on the new loan, then it really makes no sense to choose this option. One thing that you should think about is the fact that if the new loan ends up being around the same amount that you are currently playing, it may be easier to manage as one lump sum with only one set of monthly payments.

Faster Debt Relief

Faster Debt Relief

Debt consolidation could be right for you if you have a decent and secure income. The reason for this is the fact that you could merge you many loans into one, in doing so you would remove the various individual monthly payments and would decrease your likelihood of accumulating higher debts through late payment fees.

Lower Interest Rates

One way in which a debt consolidation loan could save you a great deal of money is if you manage to find one with much lower levels of interest than the ones you are currently paying. One thing that will increase your chance of finding lower interest rates is by taking out a loan with a shorter repayment term than the one that you currently have.

If you are struggling with debts on credit cards or overdrafts, you will almost certainly be better off with a debt consolidation loan as they generally have much lower interest rates than these forms of debt.

One barrier to taking out a debt consolidation loan with low interest rates is your credit rating, if you have failed to make repayments in the past or have a track record of falling behind on bills, potential creditors might charge you higher levels of interest.

Longer Repayment Periods

One of the biggest reasons that people choose to take a debt consolidation loan is the fact that you can find a loan that offers you more time to pay back your debt. This means that you have longer to sort out your finances and strengthen your overall position without being forced to struggle with crippling repayments.