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Debt Consolidation Advice: When and Why to Consolidate

Personal_Finance / Debt & Loans Jun 08, 2018 - 12:13 PM GMT

By: Submissions

Personal_Finance

Not being able to manage your budget and savings can bring you into debt very easily. Many people don’t have a clue on how much they’re spending or how much do they owe. That is why one debt calls for another and another… until they go broke.

Before you touch the bottom, you may consider doing some things to ease the pain and help you figure out how to get away alive from all of your debts. One of those things is considering debt consolidation.


What is Debt Consolidation?

Debt consolidation is a type of loan that gives you the chance to combine all your debts and pay them in one single monthly payment. It is a kind of organizational method for paying off your unsecured debts.

When to Decide on Such a Step?

Considering debt consolidation is only formidable if your debt does not exceed 50% of your entire income. That means you need your debt to not be so excessive in order to manage to pay it off.

In fact, debt consolidation comes in handy when you are an organizational mess and you have lost clue on how much you owe and to whom. Using this method you can reorganize several of your payments and bills with differing interest rates into one single payment, which is usually with lower interest. Also, you need to control your credit and check whether it qualifies for lower-interest debt consolidation loan.

And finally, you should compare and contrast the interest rates and the pay-off terms and see whether the final consolidated debt will have a significantly lower interest rate and a shorter pay-off period. You don't want to go deeper into debts nor longer, right?

But, What Should You Be Careful About?

As soon as you consolidate your debt, you might get a feeling that you’re debt-free now, naturally. But this is the essential thing you must bear in mind: a debt consolidation is another loan. With it, you are not free of other debts, you just switched from paying multiple accounts to paying just one.

This is the terrible error that most people make. Seeing that there’s only one bill and not seven, makes them feel relieved and they soon forget that the debt is still there, and the amount is still the same.

That's why we cannot emphasize this enough. Although debt consolidation has its perks, it still has its downsides. This is the prime one.

And, a last piece of advice. Sit down and write all of your debt amounts on a piece of paper. If you see that the monthly payment exceeds half of your income, please consider counseling before it’s too late. Having that much debt might mean that you are an over-spender or you have serious budget management problems. Counseling can help you come up with plans and strategies how to overcome your problems, at least up to the point where you can ask for a debt consolidation.

By Alex Larsens

© 2018 Copyright Alex Larsens - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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