Debt consolidation can get a bad press – and for good reasons. Often, you will end up in more debt than you were in the first place, and face far higher interest rates for a much longer period. However, used wisely they can help you get back on track with your finances. Here are the major positives of debt consolidation, and how to use them.
Addresses Your Financial Problems
Debt isn’t necessarily a bad thing, but once it starts getting on top of you, things can get sour quickly. So, if you take out a debt consolidation loan for the right reasons, then it’s a sign you are starting to address your financial issues. And, of course, taking action to meet them head-on. However, it is vital that you use it as a stepping stone to changing your behaviour for good. If you fail to do this, there’s a good chance that you will just fall back into debt again. Around 70% of people who merge their debts tend to do just that. The consolidation loan just becomes another bad debt that they struggle to pay back. You have to make sure you can count yourself in the minority.
Gives Your Repayments A Structure
One of the major benefits of debt consolidation is that it takes all your debts and gives you one payment date each month. It can be overwhelming when you have lots of different payments coming out of your account at different stages. And, that’s where many of the problems start for people. You miss one payment, and you get hit with a charge. Then you need to pay it a short while later, meaning you are short of money to pay another debt. By the time the end of the month comes you could be out of cash – and the debt spiral starts in earnest. You have to break that cycle – and consolidation is one of the many forms of debt help that are available. However, it’s important to try and keep a clear head, regardless of how severe your situation is.
Many debt consolidation loans sound attractive because it appears that you will be paying less. But it isn’t always the case, as some loans will be for a longer period. You need to be savvy enough to investigate all your options first to make sure it doesn’t end up costing you more than your original debt. Use an online interest calculator when researching potential loans to make sure you are getting the best deal.
Stops Damage To Your Credit Rating
Whether you have a poor credit score or not, once you start a debt consolidation plan, you will start to repair the damage. Assuming, of course, that you make your repayments in a timely fashion. It also avoids the serious damage that alternative measures – such as bankruptcy – can bring. You have to weigh up the consequences of each solution that is available to you, and understand that what you do next could have a bearing on your future.
Debt consolidation can work – but only if you take the time to investigate the deal on the table. Be careful what you sign up for, or it could make your issue worse.