what is debt consolidation?
In simple terms, debt consolidation is You take out one loan to cover the costs of your pre-existing loans. By doing this, you can ensure that you are only paying out one lump sum per month. So, you don’t have to deal with a wealth of creditors or various rates of interest. You simply pay the debt consolidation company. With this, you can ensure that you only have one set of terms and conditions to contend with. For many, a variety of different loan agreements, terms and conditions can present a whole host of problems. Simplifying your processes and loan means that you can have a greater, more holistic view of your financial affairs.
Before you decide on Debt Consolidation , there are a wide range of things that you need to do.
Try to Reduce Spending :
Try to reduce your spending as much as you can by Keeping track of your finances is one of the best ways to manage your spending . Of course, your outgoings can be reduced too. You can minimise your household bills by shopping around and comparing providers. This is a positive way of taking the helm of your finances.
Having an affordable way to pay back debt is vital. You need to ensure that you are in a sound financial place to repay your debts. One of the biggest advantages of a debt consolidation loan is that it gives you peace of mind that you are practically managing your debts and loans. Speaking to a professional for advice is the best way to determine whether this is the right route for you.
How Does Debt Consolidation Loan Work?
There are numerous ways Lets see a few Ways
Unsecured Loan :
Unsecured debt consolidation loans are easy to obtain. The process is straightforward and you are given a loan that covers the full amount of your current credit agreements. Typically, the rate of interest is lower with this kind of loan . So, you know what you are paying back is beneficial to your finances.
While this isn’t a guarantee of becoming debt free straight away, it is an assurance that you are monitoring your debt in a more substantial way. This means that you are simply moving one debt to another. The term time may be longer, but you will have a debt free deadline, which for many, is a significant advantage.
Secured Loans :
If you are a homeowner, you may be required to secure your mortgage to the value of the debt consolidation loan. This works in a very similar way to the unsecured loan, however, the turnaround time is quicker as you have collateral that you can use for your consolidation loan. For many, this is a great advantage. But, it does have a high element of risk attached to it. If you don’t keep up with your payments, you home may be repossessed to cover the loan amount. So, if you do go for this option make sure that you keep up with the repayments .
If you find that debt consolidation is not for you, or you have been rejected, you need to look at other ways that you can repay your debts like You may need to look at re mortgaging your home so that you can free up any equity or You may find that you need to make amends on your credit report.
Veeramachineni Lalitha
I am Finance Content Writer. I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. My experience details : Linkedin