It may sound nice and a very promising solution to consolidate debt but it is not right for everyone and can make your situation even worse if you do not know all the facts about it beforehand. You must fulfill some criteria to go for debt consolidation and also to check all other options that may be available to you and to make sure that you are taking the right decision. Consolidation of debt usually means taking a new credit to pay off all the other existing debts, big or small. It often involves taking a much bigger amount of money, equal to the total amount outstanding or more, at a lower rate of interest from a single source.
The Expert Tip
As debt consolidation means taking a new and bigger loan you must consider all the pros and cons of it before taking it and it is best to take the advice and help of an expert for this purpose. It is a practice to take a consolidated loan not only to bring down the monthly rate of interest but also to reduce the monthly repayment amount alongwith bringing down the number of companies that money is owed. It has proved to be a very useful strategy for many though, but be advised that it involves extra costs and has the potential to make a difficult situation bad to worse. So, consider visiting and expert for help.
Debt Consolidation Or Management
Your expert may suggest you for debt management plan also and then you have to decide which one you would like to follow. Debt management is a completely different issue from debt consolidation and you must not be confused due the apparently similar terminology when you desperately want to sort out your debts. Debt management means you negotiate with your creditors to make affordable payments monthly and not the amount you should pay to them each month. If you are confused and cannot decide which one of the two to take up, you can take help of a debt consolidation calculator. It will help youto find out whether you need debt consolidation or not.
Know The Reality
Debt consolidation may sound like a great option due to the effective marketing of it but you must know the reality behind it. Consolidation actually means that you are indebted to one creditor with large sum of money and you may end up spending on credit once again. Lowering the monthly payments can also lengthen the tenure of your loan and keep you in debt for a longer time. Also, the apparently lower rate of interest might end up higher interest in total as you have to repay for a long time.
Avoid The Schemes
You must have a proper budget at place to repay your credit card loan consolidation amount each month, which is better than securing your consolidated debt against your home. If you fall behind with the payment of the consolidated loan against your home, you may have a lot of problem in your house repossession. And lastly, do not go for any government debt consolidation schemes as nothing like this exists.