In what situations would you need to consolidate your debt and what is it?
If you are struggling with debt repayments, it might be time to consider entering into some sort of debt consolidation plan. Debt consolidation can lower your monthly repayments, giving you room to breathe again financially and sometimes it can help you get out of debt quicker. Ultimately, if you are paying out more than you can afford to on debt repayment, it might be time to consider entering into a consolidation agreement.
There are two types of debt consolidation. The first involves taking out a loan to pay off your debts and put them all into one place, usually whilst making use of a lower interest rate. They are usually able to pay the loan off quicker too by putting all of their debt into one place, which reduces the interest payments even more. The second method usually requires the help of a debt management company and requires those paying off debt to enter into a debt management plan. They make one payment to the debt management company and this is split fairly between their creditors on their behalf. They can usually negotiate lower repayments on your behalf. Is debt consolidation a good idea in the long run though?
Further resources and reading
It might be a good idea to investigate what debt consolidation is before you make your decision. One of the best resources to find out information on debt consolidation is Money Expert Debt Management. They can give you the advice and tools that you need to start moving forward with your life once again.
When is it a good idea?
It is always a good idea to look for a debt management plan if you are struggling to pay your bills. Consolidating your debt can give you the space that you might need to get back on track and can protect your financial record so that you can still be accepted for financial commitments in the future. It should be noted, however, that debt consolidation loans do often appear negatively on your record, it just doesn’t look as bad as missed payments. It could also be a good idea if you are just not very good at managing your financial obligations. If you, for instance, regularly forget to make payments having your debt in one place makes sense. At least, when you manage your debt this way you only have one payment to think about each month.
When is it a bad idea?
It isn’t a good idea to enter into a debt consolidation agreement if you are not ready to change your outlook on spending. You need to be able to accept that debt consolidation should be a turning point, that from now on, you need to work at handling your finances better. Sometimes debt consolidation can be seen as an easy fix and this just encourages people to keep spending and make the problem even worse in the long run. Entering into debt consolidation needs to be part of a conscious decision about your lifestyle. Read our post on the dangers of debt desperation to see if this can help.
