Written by moneysupermarket.com
Debt is a personal finance nightmare, but most of us will have to tackle it head on at one time or another. To help people deal with debt there are many debt management techniques or strategies and debt consolidation is one of them.
Debt consolidation is the process of merging all of your debts to form one single balance to repay. This process has both its advantages and disadvantages but you should only consider debt consolidation an option when you feel like you can no longer cope with your repayments.
The advantages
You will only have to make one payment every month, as your debts will all be combined to form one liability
The pressure of paying your debts back will be lessened as you will be given a longer repayment period
You will no longer get hounded by creditors for payments
The interest you will have to pay back is normally reduced
The repayments are made more manageable and suited to your needs
The disadvantages
As you are given longer to pay off your debts you will be in debt for a long time
Some people don’t like the idea of taking out one loan to pay off another
Now you know the advantages and disadvantages, how can you actually get it done? You can enroll in a debt consolidation program or you can decide to take out a debt consolidation loan by yourself.
Debt Consolidation Programs
If you don’t want the burden of consolidating your debts yourself then you can enrol in a debt consolidation program. The company you get enrolled with will analyse your financial situation and take out HARP loans that they feel you should be able to repay.
The company will negotiate the terms of the loan including a low interest rate on your behalf. You will no longer get hounded by creditors as they will take care of that for you.
To be enrolled in a debt consolidation program you will have to pay a fee depending on the amount of debt you actually have. So to make sure you find a good deal, do your research first and consult your bank.
Debt Consolidation Loan
If you feel like you are confident enough to take out a debt consolidation loan on your own then you can. A debt consolidation loan will typically cover up to $100,000, but the loan will have a really long repayment plan so make sure you analyse your options thoroughly.
You could also consider taking out a consolidation loan and securing it against one of your assets e.g. your home, but remember that if you don’t keep up with your repayments then you do risk loosing your possessions.
These are the two main ways to consolidate your debts, but before you decide how you want to move forward if this is your choice then consider consulting a financial adviser and your bank, because any decision you make will impact your financial future.
