Debt Consolidation.. Good points and bad points?
Debt consolidation programs have always been available to the general public however the current economic climate is forcing more and more people to consider them as an answer to their money problems. In simple terms a debt consolidation program involves you, the borrower, taking out a large loan that is sufficient in size to pay off all of your existing debts. These debts can be in the form of credit card bills, store cards, car and other forms of finance, personal loans and even catalogues. After the debt consolidation process is finished, you are left with one monthly payment that is often much lower than the total of the payments you were making beforehand.
Obviously, there are good points and bad points to debt consolidation programs and these need to be considered carefully before you make an application.
The Good Points of Debt Consolidation Programs
The main reason why people use debt consolidation services is to reduce the amount of money they have to pay out on a monthly basis. By lumping all of your debts into a single loan, you can have the peace of mind of knowing that you only have to find one payment each month - which can be hundreds of pounds less than you currently pay on your other credit bills. The outcome is that you have more money spare each month than you do now and life gets a little bit easier.
The Potential Bad points
Even though debt consolidation programs are beneficial in the short term, they can cost you a lot more in the long term. This is because most consolidation loans are taken out over 10, 15 or even 20 years and the interest you pay over the terms of the loan can easily outweigh the interest charges you'd pay if you left your debts as they are. With this in mind you should consider if you mind paying more over the years for the added security of more spare money now.
Another point to consider is that most debt consolidation programs, and especially those that involve sums over $20,000-$25,000, require some form of security before the loan is approved. This is more often than not your home, or another property of sufficient value. Unfortunately if you use your home as collateral and then later default on your consolidation loan payments then you do run the risk of having to sell your house and paying the entire loan off from the proceeds.
Similarly if you don't have enough equity in your home to cover the debt then it's probable that you'll be turned down for a consolidation loan and so debt consolidation programs are not technically available to everyone...even though a lot of lenders claim they are
Finding a Debt Consolidation Program
There are various ways to find a debt consolidation program to suit your needs, including the following:
- On the internet. It is important when researching debt consolidation services on the internet to read the terms and conditions of the loan carefully. This is because the fine details won't be explained to you face to face and it's easy to miss something important. There are plenty of service providers to choose from on the net so try to find a few customer testimonials or reviews to help you make a decision.
- At your personal bank or at a bank you don't use. Banks and building societies can offer good deals in order to secure your custom however these financial institutions don't tend to offer debt consolidation loans above a set limit. Each bank will be different so it pays to shop around on the high street.
Debt consolidation programs are a great way of freeing up money in the here and now. They allow you to make one single payment each month which is generally lower than the sum of the multiple payments you might be paying now. They can however result in you paying your debts for a much longer period of time, and this in turn can mean you pay back more than if you leave your debts where they are.
If you do decide to use a debt consolidation program then it pays to shop around, so take the time to research the market and find a service provider that suits your needs exactly.
