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What is debt consolidation ?

You are indeed lucky if you are not a borrower of some sort. Most working adults are borrowers and sometimes this could not be helped due to their financial background or needs or just to cope with the Joneses. Borrowing, and we mean borrowing from financial institutions here, will invariably cause you to end up owing more especially when you borrow from a few financial institutions for different things like house mortgage, car hire purchase and the like.

What about this facility called Debt Consolidation? What makes them stand out in the midst of the various financial facilities available? What sets them apart from the usual loans out there? Well, Debt Consolidation Loans are loans which are assist you to deal with the various loans which you currently have.

In a nutshell, what it does is to consolidate all your loans into one single account. Assuming you have 3 different loan accounts which have 3 different payment due dates, having a Debt Consolidation Loan would mean that this Debt Consolidation Loan will cover the three and you only need to service the payment once a month. This ensures that you do not miss out in your repayment especially when you have different payees to deal with and at different times. Missing out on a repayment even by a couple of days would mean having to pay penalties and interests which will place a further financial burden on you, not to mention giving you a bad credit rating.

As Debt Consolidation Loans are highly competitive in the market, it is most likely that the interest rates are lower than conventional loans. It is therefore a good option to consider if you are currently struggling to pay off your credit card debts or overdrafts which usually carry higher interest rates. Why pay more when you can consolidate all these loans or debts which comes with high interest rates into a single Debt Consolidation Loan with lower interest rates?

When you consider a Debt Consolidation Loan, it gives you a second chance to restructure your current outstanding debts. It may mean giving you a breather in terms of a lower interest rate or a longer repayment period or a lesser amount payable per month. Sometimes, people might be in certain emergencies which render their financial situation precarious – eg, a fall in the share market or medical emergency requiring substantial expenses incurred. A Debt Consolidation Loan can help to give the breathing room needed.

Of course, you will have to do your maths to ensure that at the end of it all, the benefits of using a Debt Consolidation Loan outweights your current debt situation. If you were to choose a longer repayment period, will your total interests payable over the period be much more compared to what you are currently incurring? Choosing a longer period to repay your Debt Consolidation Loan also means having a debt lingering over your head for a longer period of time.

You must also ask yourself whether you will be financially disciplined once you have consolidated your loans into one single loan. If you fail to do so thinking that you have a lesser amount payable and thus spend more instead, you might find yourself down the road to further financial misery. Running up fresh debts is not difficult to do especially with the instant lure of credit card spending. You definitely would not want to go back to square one or in a worse off position.

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