There are a lot of people at the moment that are doing things tough and are looking for a way to help with the burden of debt that is making life impossible. Debt consolidation programs can help with this situation by allowing you to reduce your payments and interest rates.
This is done by taking all of the small debts that you have such as credit cards, store cards and pay day loans and rolling them into a single larger loan. This can be a solution that allows you to get back on your feet and put your finances in a better position.
Is Debt Consolidation Right For Me?
The main advantage of consolidation is the ability to lower the monthly payment. This means that you can be in a much more comfortable position. The high interest rates and tempting minimum monthly payments on several credit cards can quickly lead to a large amount of debt. If even a single payment is missed then rates and penalties can quickly mount up making repayment difficult.
The down side is that the payments are spread over a longer time period. This can give you a good incentive to pay extra when you are in a financially better position.
Understand Debt Consolidation Risks
Debt consolidation programs are useful and they can help many people. They also can make the debt problem worse so it is important to understand what is happening to the debt and what you need to do to ensure that you do not find yourself in an even worse position in six months time.
- The full debt still needs to be repaid and the combination of lower interest rates and a longer repayment period have made the monthly repayment less.
- The credit cards and store cards that have been cleared must be used responsibly or not used at all. This can be very difficult for some people because they want to be able to spend this available credit.
- The consolidation loan may mean that you end up paying more interest. Even though the rate is lower the longer period can make the total repaid higher.
One of the important things that you should understand before accepting the terms of a consolidation loan is if you are required to provide collateral. This usually comes with the lowest rate because it is secured against your home. If you default on the loan then the credit provider can foreclose on your home.
- Credit cards have no collateral and cannot claim against your home if you go into default.
- Consolidation loans that are unsecured cannot claim against your home if you go into default.
- Consolidation loans that use your home as collateral or take a second mortgage over the property can claim against your home if you default on the loan.
It is important that you are able to ensure that the reason you originally found yourself in trouble with excess debt is not repeated. This means learning the skills to be able to make a budget and to be able to accurately track your spending. These skills which you can take evening courses in are usually subsidized and may even be free.
Even with the skills you also require the will to control your spending and the commitment to not use credit cards and the like to get even further in debt. If you have you can do this then you will be able to successfully use the debt consolidation programs to advantage.
Where You Can Obtain Debt Consolidation Financing
There are a number of institutions that can help you to consolidate your debts. The rate that you will be offered will depend on a number of factors. If you have had problems with debt payments then this can adversely affect the chances of getting a preferential rate.
- The first place to look for the best terms is a bank that you already have a relationship with. They are likely to try harder to keep your business with them as long as you have not missed any payments with them.
- Credit unions are less restrictive than banks in their lending practices but they will likely charge a higher rate to offset this. If you have an existing relationship then this can tip the balance in your favor even with a credit report that has a few small problems.
- Specialist lenders that have debt consolidation programs. These lenders are open to almost anyone that wants to consolidate their finances. They have higher interest rates and usually require collateral but will consider people that have poor credit history. It is important to understand the full implications of any deal offered.
The longer you leave you finances in poor shape the harder it will get to obtain finance at rates low enough to be helpful in your predicament. It is best to have financing in place before you default on any payments you should have made.