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Think Carefully before Opting for Debt Consolidation |
| By John Porter |
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Is debt consolidation really the answer to your debt problems?
More than one lender, of course, means more than one payment from your account or more than one bill through your door every month. And more than one cheque to remember to post and more than one phone call to make to argue about the ridiculously high late payment penalty.
It all adds up to a lot of hassle. And if you are one of those people with multiple credit cards, multiple loans and a mortgage on top of that, it's not only a lot of hassle, it's a lot of debt too.
No wonder those adverts suggesting you combine all those debts into one, so you only have to worry about one bill and one payment, seem so attractive.
This is known as debt consolidation. And while it might seem like the answer to your problems, closer investigation might suggest that's not necessarily the case.
While it is undoubtedly favourable to be dealing with just one bill a month instead of a multitude, that positive is outweighed heavily by the potential negative of parting with more money - which is often the case with debt consolidation loans.
Unfortunately, there is no magic wand here. It is a case of working out the exact amount of interest you are paying on all your various debts and comparing it with the interest rate of the debt consolidation loan.
If you are in debt, it is never worth paying more just for the benefit of turning lots of debts into one. If you come to the conclusion that debt consolidation is the option for you, through a new credit card, a consolidation loan or even remortgaging, then you have to make sure it won't work out more expensive for you in the long run.
But how did you come to the conclusion that debt consolidation was the right option for you in the first place?
If you are suffering with your debts, there are many different routes you can take to get you out of the hole and sometimes they are simpler than you imagine, such as economising. It's amazing the amount of people who would rather take out another loan than just cutting down on excess spending.
And that's another problem with debt consolidation - when they have just one loan once again, too many people see it as a green light to go out and get another one further down the road. But that road leads to hell, for obvious reasons.
If you are thinking of consolidating your debt, the best thing to do is to seek professional help first. Speak to a debt counsellor and they will be able to talk you through all the other options.
A reputable debt counsellor will offer free consultation so you don't have to worry about parting with more money when you have so little to spare from all your debts in the first place.
A carefully chosen debt consolidation loan might suit you if you're struggling with all your different debts but you should consider every alternative before committing yourself.
If you find a consolidation loan that saves you money on interest it is undoubtedly an attractive proposition, but a debt expert can advise you on whether options other than debt consolidation would suit your situation better.
By John Porter from United Kingdom
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About The Author:
John Porter is a senior debt counsellor at The Debt Counsellors, who provide free advice on debt consolidation and all personal debt problems. http://www.debtcounsellors.co.uk
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