There are several advantages to merging your financial obligations into just one debt consolidation loan. For many people it can be appealing to begin to make only one payment per month as opposed to many monthly payments. Making lots of monthly payments towards a number of lenders in respect of a number of different accounts is time consuming, in particular when financial resources are restricted and there’s too little money to go around. You’ll have to select which bills are ‘priority’ ones. These you need to pay. With regard to the rest simply must make do with whatever you are able to repay, even when in some instances it is lower than the contractual amount of money that you should be paying. I big advantage – whether perceived or actual – is that you have just one lender to deal with instead of many creditors. Dealing with your funds as well as obligations is simple. It is additionally probable that your credit score will improve particularly if you include all of your credit card accounts within the debt consolidation. On top of those benefits, the actual monthly repayment on the consolidation loan could be below the total amount of the payments on the multiple loans.
Why should this be? Just one particular factor is that the time period of the loan consolidation may be (a lot) greater compared to various terms of the primary loans. Another aspect is that you could possibly have agreed to permit the consolidation loan to be secured on your property. Lower monthly repayments are likely to be based on one or both of those factors. Whilst the monthly interest on the planned debt consolidation loan may be lower than the rate you are paying on (many of) your debts at this point, the total amount you will need to pay back might be substantially higher on account of the time-span of the term of the loan consolidation.
So what can go wrong? If you are having difficulties to make your payments at present you should make sure that you will be able to comfortably make the consolidation loan payments in a sustainable way and for the entire projected duration of that loan. You should avoid utilising the credit lines that you have combined. For example, you should chop up all the credit cards you possessed and stop using any overdraft facilities or other credit facilities which contributed to your financial hardships to begin with. When you have repaid all your accounts and credit cards using the funds of the consolidation loan, you will find that your ‘old’ lenders may choose to do further business with you and make all kinds of ‘attractive’ credit promotions to you. It is wise to reject these kinds of promotions, if you would like stop struggling again.
One more downside of acquiring a debt consolidation loan is that you may be asked to agree to secure the debt consolidation loan on your property. In case you are cannot keep up the repayments (on the consolidation loan) you could possibly suffer a loss of your premises. Although you may get a low interest rate by agreeing to secure the loan on your home, the more than likely long term of the loan consolidation means that you give up a bit of freedom with regards to your mortgage e.g. being mortgage-free when you actually expected to be or being in the position to retire early or when you decided to cease working.
Therefore, do think long and hard before deciding about debt consolidation loan to provide a solution for your financial difficulties. Give some thought to whether other solutions might be more appropriate in your circumstances. For example you could possibly already be insolvent. Should you be you may look at stepping into an Individual Voluntary Arrangement (IVA) or petitioning for your own Bankruptcy (BCY). They are two personal insolvency processes that shield you from creditors and which also have got the full weight of the the legal system behind them. Even if you are not insolvent, you may consider entering into a Debt Management Plan (DMP) with your creditors. You can do this all by yourself by reaching agreement with all of your lenders concerning how you will pay back the money you owe to them. This is sometimes known as a self administered DMP. Most DMPs nonetheless usually are managed aided by the assistance of specialized debt management providers having expertise in talking with lenders along with putting together DMPs between clients and their lenders and then administering these programs over a period of years and in some cases through a long time. Whatever you ultimately opt to do, do take guidance. Do not assume that consolidating debts is the solution to your plight until you have become aware of the other choices which can be available and have thoroughly looked into them.
