After undertaking online research to find solutions to your debt you will find many companies listed, you will also see promotional details encouraging the your the searcher to give them an instant call to help your eliminate all your debt problems. You will also see debt related books for sale, debt advertisements, debt consolidation calculators, client testimonials and debt worksheets to assist with debt problems.
However, there is not even one extensive guide to clearly help understand what debt consolidation is all about and how can debt consolidation be used to find a solution to UK debt. An overview on the concept and its relevance as debt solutions is presented in subsequent paragraphs.
The Debt Consolidation Process
Debt consolidation is an exercise, wherein a loan, now this could be a payday loan, a loan just for the weekend or a longer term loan – that is taken up to repay various other debts or loans. It is an attempt to organize and deal with the debt issue whilst lowering of the overall debt cost.
The cost is reduced, because the various debts are traded-off with one debt which entails a lower interest fee.
This typically happens by exchanging the ‘high-cost-unsecured’ debts with low cost secured debts. These loans can be most easily sought by pledging homes or mortgage as collateral. This collateralization reduces the lender’s risk and thus offers a cushion to the debtor, by being able to get a loan, at better terms than otherwise and thereby find debt solutions to the otherwise difficult to manage debt problems.
Credit card debts are typically the most expensive form of debt. The high interest rate charges associated with credit cards demand immediate attention that can be conferred by debt consolidation. Credit cards create an ease of spending that leads to unplanned extravagance and debt issues. These are unsecured loans and are usually more expensive than other unsecured loans. Therefore, when finding a practical debt solution through debt consolidation, your credit cards deserve top priority. If these loans can be effectively traded with cheaper, secured loans, debt problems are certain to be minimized.
Debt Consolidation Benefits and Cautions
Debt Consolidation:a Loan to Pay off other Loans: Debt consolidation is like applying for a loan to repay other loans. It might seem an unnecessary exercise, of making so many adjustments on the name of debt elimination. Well, if closely scrutinized the benefits would be quite apparent. The collateralization happens in such ways that the various high interest loans are re-paid with a lower rate loan. This logically reduced the total outstanding amount and to an extent eases off the debt problems.
A perfect example to further elaborate on the theory of debt consolidation is presented by credit card related debt problems. Credit cards accompany substantial interest rates, which multiply drastically with time and inability to pay situations. By applying the debt consolidation theory in that case and taking up a lower rate secured loan to repay the credit cards debt, debt problems can be significantly dealt with.
A Debt Consolidation Loan and the Agreement Terms: Debt consolidation seems a viable tool to find a debt solution. However, it is important to look closely at the agreement terms. Debt consolidation might reduce the immediate monthly loan cost but can inflate the overall fees throughout the term. Check the amount paid during the period of the entire loan.
Debt Consolidation can Hurt! “Enjoy a debt free and therefore stress free life with debt consolidation advice’ or ‘debt consolidation to consolidate all pains in one bundle’ are among few of the catchy phrases used by debt consolidation service providers to rope in debtors. As tempting as they might appear, it is suggested to exercise extreme caution while selecting any agency for the elimination of any debt problems by way of debt consolidation or undertaking any action towards this end. Debt consolidation is a sensitive and important concern, which if not handled precisely might further create situations difficult to manage. All debt consolidation endeavours would not necessarily eliminate or reduce debt problems, few could result in the very opposite. For instance, there could be risky loans with lower immediate monthly payments, but higher overall loan cost. This in fact is a move practiced by loan providers to cash-in on your situation. Therefore, when applying for a loan to consolidate existing loans, make sure you calculate the total associated costs.
Hiring a debt consolidation service provider might also open the gates to the said trap. The supposed assistants are in business to make money and this of course they charge from you, in the name of minimal debt problems elimination fee. But is this additional cost actually desirable. Can you not undertake the required research at your end and deal with all debt consolidation queries. If the answer is positive, don’t think further. Take this guide as a start-up and deal with all debt problems by referring to debt consolidation option.