What is debt consolidation?
Debt consolidation is a way of simplifying your debt repayment process and reducing the amount that you pay each month towards your debts. How it works is you take out one big loan from a credit provider and pay off all of your debts with your various credit providers with that loan, and, in this way, you only have to pay one monthly instalment to the credit provider who consolidated your debt.
How will debt consolidation benefit you?
As smaller loans usually have higher interest rates and different credit providers charge different service fees, the overall amount you will end up spending on your debt repayment each month is bound to be higher, if you have more than one loan to pay off.
For these reasons, debt consolidation can seem like the more appealing option, when it comes to debt refinancing, as you will only have to pay off one credit provider at a lower interest rate. It will also save you time and effort, as it requires a lot of admin and can often be confusing to keep track of all the different credit providers that you owe instalments to each month, and this could even lead to you missing some payments and paying the wrong amounts into the wrong accounts!
What are the dangers of debt consolidation?
As appealing as debt consolidation may sound to you, there are risks involved to taking out another loan, when you are struggling to pay off your other loans. Once you are credited with this large amount of money, which is supposed to be used to pay off your smaller debts, you must be careful not to let things slide again by dipping into it, as temptation is all around us in this consumerist age.
You must immediately pay off all your credit providers with the debt consolidation loan, otherwise it is very easy to continue with your bad spending habits, which are the cause of you being in debt in the first place.
Your focus should be on getting rid of your debt, not adding to it with another loan, so it’s advisable that you speak to one of our consultants, at Help With Debt to get some solid budget advice, before you commit yourself to something that doesn’t work for you.
Our debt consolidation services are available in the following areas: